Ryan S. v. UnitedHealth Grp., No. 22-55761, __ F. 4th __, 2024 WL 1561668 (9th Cir. Apr. 11, 2024) (Before Circuit Judges Clifton and Sanchez and District Judge Edward R. Korman)

ERISA does not require employers to offer health insurance to their employees. If they do, however, they must comply with a host of requirements. Many people are familiar with COBRA and HIPAA, but fewer are aware of the requirements embodied in the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (the “Parity Act”) and its implementing regulations. This law provides that any limitations on benefits for mental health or substance use disorder (“MH/SUD”) treatment must be “no more restrictive” than limitations on benefits for medical and surgical treatment.

In enacting the Parity Act, Congress clearly recognized that MH/SUD claims were being treated less favorably than medical/surgical claims and that as a result patients were being denied access to necessary treatment. It passed the Parity Act and incorporated its provisions into ERISA with the intention of addressing and ameliorating discriminatory insurance practices. Unfortunately, sixteen years later, despite the passage of the Parity Act, the unfairness targeted by it still exists. All too often patients seeking MH/SUD treatment still find barriers to getting their benefit plans to pay for that treatment.

There are numerous reasons why, but one important obstacle is the Parity Act itself. The courts have struggled to interpret and enforce the Parity Act’s broad language. Some parity violations are easy to spot, such as higher costs or fewer allowed visits for mental health services. But other violations are more difficult to identify – Parity Act regulations call these “Non-Quantitative Treatment Limitations,” or NQTLs – and the courts have had difficulty articulating legal standards for evaluating them. As a result, plaintiffs have often been left wondering what they need to do to properly plead a violation.

In this week’s notable decision, the Ninth Circuit offered a bit of needed guidance, crafting a new pleading standard and reviving for the second time a putative class action against UnitedHealthcare.

The named plaintiff in the action is Ryan S., a resident of California and a participant in an ERISA healthcare benefit plan insured, administered, and managed by United. Ryan received substance use disorder treatment from 2017-19, but when he submitted claims to United for this treatment, United mostly denied them. Ryan was variously told that his claims were not payable because “no documentation was submitted,” “your plan does not cover the services you received,” or “the information submitted does not contain sufficient detail.”

Ryan suspected something fishy was going on, and he was not the only one. During this same period, the California Department of Managed Health Care (“DMHC”) began investigating United’s claims handling. The agency uncovered the existence of United’s ominous-sounding Algorithms for Effective Reporting and Treatment, or ALERT, which United used as an additional layer of scrutiny in processing MH/SUD claims. A report issued by the DMHC in 2018 concluded that ALERT was applied solely to MH/SUD claims, and that no comparable additional review process was used in evaluating medical/surgical claims.

Armed with this report, Ryan sued UnitedHealth Group, Inc. and eight of its wholly owned subsidiaries on behalf of a group of similarly situated individuals alleging claims under ERISA and seeking relief under Section 502(a)(3). Specifically, Ryan alleged that United violated three of ERISA’s requirements: (1) the Parity Act; (2) the fiduciary duty of loyalty; and (3) the duty to follow contractual terms of ERISA-governed plans.

Given the difficulty courts have had with the Parity Act, you will not be surprised to learn that even though Ryan filed his suit in 2019, the case is still stuck in the pleading stage. First, the district court dismissed Ryan’s complaint for lack of standing. Ryan appealed, and the Ninth Circuit reversed, holding Ryan had standing to pursue claims based on United’s practices of refusing to cover outpatient MH/SUD treatment, refusing to pay for auxiliary treatments, and refusing to cover laboratory claims. (This decision was one of Your ERISA Watch’s cases of the week in our March 30, 2022 edition.)

On remand, United renewed its motion to dismiss, this time arguing that Ryan could not state a claim under Federal Rule of Civil Procedure 12(b)(6). Once again, the district court granted United’s motion. It concluded that Ryan failed to allege that his claims had been “categorically” denied and that he had insufficiently identified analogous medical or surgical claims that he had personally submitted which were processed more favorably.

Ryan appealed for a second time, and in this published opinion the Ninth Circuit again reversed. The court addressed Ryan’s three claims for relief in order, and thus began with the Parity Act. It opened with an apology for the state of Parity Act jurisprudence. The court acknowledged that its guidance in this area was “limited,” there was “no clear law” on how to plead a Parity Act violation, and district courts had been forced to “improvis[e]…often with inconsistent results.”

The Ninth Circuit attempted to rectify the situation by identifying three distinct types of Parity Act violations, which it called “facial exclusions,” “as-applied” violations, and “internal process” violations. In the first category, a plaintiff alleges a plan exclusion “is discriminatory on its face.” In the second category, a plan might contain a facially neutral term, but an administrator would violate parity by applying it in a discriminatory manner. In the last category, a plan administrator would violate parity by using “an improper internal process that results in the exclusion” of some mental health treatment.

The Ninth Circuit noted that the third, “internal process” violation was what Ryan was alleging in this action, and endeavored to outline the pleading requirements for such a claim. The court began by clarifying that Ryan did not need to allege a categorical denial practice, or the “uniform denial of his benefits,” which the district court appeared to require. Simply handling MH/SUD claims more stringently constitutes a Parity Act violation, regardless of whether it leads to uniform denial decisions.

The Ninth Circuit further held that Parity Act claimants need not “identify an analogous category of claims with precision.” While the court acknowledged that the concept of parity requires some comparison between MH/SUD claims and medical/surgical claims, it ruled that “the plaintiff can define that analogous category quite broadly.” The Parity Act only requires a comparison between treatment “within the same ‘classification’ – in this case, outpatient, out-of-network treatment.” Thus, “[a]ny other medical/surgical treatment within that classification can be a sufficient comparator.”

Importantly, the Ninth Circuit also observed that Parity Act plaintiffs suffer from an asymmetry of information. After all, MH/SUD patients typically have not received analogous medical/surgical treatment in a similar classification, and thus “would have no basis to determine the process used for those analogous claims.” Thus, plaintiffs alleging an improper internal process “need not specify the different process that allegedly applies to the analogous category of medical/surgical benefits.” Instead, the plaintiff only needs to allege facts sufficient to suggest that the challenged process is specific to MH/SUD claims.

This, of course, is more easily said than done. “Simply alleging the denial of a plaintiff’s claims for behavioral health benefits is unlikely by itself to support a plausible inference that a defendant employed policies in violation of the Parity Act.” Ryan’s complaint did not suffer from this flaw, however, because he “pleads something more.” Specifically, Ryan’s complaint included allegations regarding the DMHC’s investigation into United’s ALERT system, which United had conceded it only applied to MH/SUD claims. The court stressed that simply using the ALERT system could amount to a Parity Act violation, even if the claims flagged by the system were ultimately denied correctly: “Even if all those denials were independently valid, the mere fact that the reasons to deny coverage were identified only because the MH/SUD claims were subjected to an additional layer of scrutiny could violate the Parity Act.”

United contended that Ryan had not shown a sufficient nexus between his claim denials and the ALERT system. However, the DMHC’s report found that at the relevant time United subjected all of its MH/SUD outpatient claims to a more restrictive review process, and thus for the court this was “enough to connect the report’s findings to Ryan S.’s denial of benefits and is therefore sufficient to place Ryan S.’s allegations ‘in a context that raises a suggestion of’ wrongdoing.” Indeed, if Ryan’s allegations, which were supported by the findings of a state agency after a comprehensive investigation, were insufficient, it “would make it inordinately difficult for a plaintiff to challenge an internal process, given the likelihood that an individual claimant’s own administrative record would not shed light on the internal processes to which the claims were subjected. The plausibility pleading standard is not that unreachable.”

Accordingly, the Ninth Circuit reversed the district court’s dismissal of Ryan’s Parity Act claim. The court similarly reversed the district court’s dismissal of Ryan’s breach of fiduciary duty claim. Because Ryan had plausibly alleged that United violated the Parity Act, the court concluded that this violation constituted a breach of fiduciary duty as well.

The Ninth Circuit’s opinion was not a complete win for Ryan, however. Unlike Ryan’s Parity Act and fiduciary breach claims, the court affirmed the district court’s dismissal of Ryan’s violation of plan terms claim. The Ninth Circuit held that even though Ryan had plausibly alleged the existence of a more stringent review process, “such a process would not automatically violate the terms of his plan.” The court ruled that Ryan “must identify a term of his plan that Defendants violated,” and that he had failed to do so.

In sum, this decision represents a major victory for patients in California whose access to MH/SUD treatment has been thwarted by the internal guidelines and processes of health insurers. Presumably the remanded action will now proceed to discovery for a deeper dive into precisely what United’s practices were during the relevant period, who was affected by them, and how those individuals were potentially harmed.

Ryan S. is represented by Your ERISA Watch co-editor Elizabeth Hopkins, along with Lisa S. Kantor, as well as by Richard T. Collins and Damon D. Eisenbrey of Arnoll Golden Gregory LLP.

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

Breach of Fiduciary Duty

First Circuit

Sellers v. Trustees of Bos. Coll., No. 22-10912-WGY, 2024 WL 1586755 (D. Mass. Apr. 11, 2024) (Judge William G. Young). A class of former and current participants in Boston College’s two 401(k) plans are challenging the administration of the retirement plans with respect to the plan’s investments and fees. They have asserted claims for breaches of the fiduciary duties of prudence and monitoring, and for failure to comply with the plans’ investment policy statement. Specifically, the participants allege that the plans’ fiduciaries improperly maintained an actively managed variable annuity stock account and a real estate account despite being aware of their chronic and sustained underperformance. In addition, plaintiffs challenged the retention of the plans’ two third-party administrators, TIAA and Fidelity, and argued that they were charging excessive fees for the services rendered. Boston College moved for summary judgment on all three of plaintiffs’ causes of action. In an exhaustive 126-page decision, the court compressively broke down plaintiffs’ claims and ultimately denied Boston College’s motion for summary judgment as it related to the duty of prudence recordkeeping fees and challenged investment claims, and granted the motion on the claims that it violated plan documents and that it failed to prudently monitor the fiduciaries. First, the court ruled that there are genuine disputes of material fact as to (1) whether Boston College acted prudently when it chose not to consolidate the plans to a single recordkeeper; (2) whether the committee was aware of the true cost of the fees including the distinction between the unique participant fee and the per participant fee; and (3) whether some committee members had conflicts of interest that warranted recusal. The potential conflicts of interest between Committee members and the incumbent recordkeepers was perhaps the most compelling and direct evidence of fiduciary wrongdoing. These conflicts included personal benefits from both TIAA and Fidelity that ran the gamut from the petty (sporting event tickets) to the professional (one committee member was on the TIAA investment council). The court therefore held that there is a genuine dispute as to whether the conflicted committee members “acted imprudently by failing to recuse themselves from voting during the 2018 [request for proposals], as they failed to remove themselves from a position where their personal interest may have come into conflict with the Participants’. A reasonable factfinder could find that this failure to recuse demonstrated a process failure. Thus, this Court rules that there is a genuine dispute of material fact as to breach on the Recordkeeping Fees’ claim.” The court also identified genuine disputes of material fact as to whether the Committee breached its fiduciary duties when it retained the challenged investments. The court found it noteworthy that the challenged investments were placed on watch lists due to their sustained underperformance, but were not removed by the fiduciaries. Thus, it determined that a reasonable factfinder could conclude that retention of the funds was imprudent and accordingly held that summary judgment was not the appropriate means of resolution. However, the court held that no reasonable finder of fact could determine that Boston College violated the terms of the plans’ documents because the “plain language of the IPS does not require the Committee to use certain monitoring criteria and gives the Committee significant discretion to whether to change investments.” While the court’s reasoning behind the Section 404(a)(1)(D) violation of plan terms claim was logical and straightforward, its holding on the failure to monitor claim was somewhat odder. Typically, courts view the fiduciary duty to monitor as derivative of the underlying duties of prudence and loyalty. Here, the court denied the summary judgment motion on the underlying imprudence claim. Therefore, it would have been reasonable to expect that it would have also denied summary judgment on the duty to monitor claim. But that was not the case. Instead, the court said that it found no evidence to suggest that defendants’ monitoring was deficient or that the trustees were not properly kept apprised to the Committee’s actions. “Thus, even though the underlying duty of prudence claim survives summary judgment, this Court GRANTS summary judgment to Trustees on the duty to monitor claim.” Accordingly, following this order the remaining duty of prudence fee and fund claims will proceed to trial. Finally, no summary of this decision would be complete without a brief note on the court’s charming “Epilogue” on summary judgment, detailing why summary judgment was not the proper tool for the determination of this case. “In short, this entire summary judgment exercise has been a monumental waste of time.” But, at the end of the day, the court did acknowledge that ultimate responsibility rested with the court itself, and that it is useless “to rail against the overuse of summary judgment.” The better use of the court’s time, it concluded, would be to simply “prioritize trial as the more apt means of dispute resolution.” It seems the court here put its money where its mouth was, and a trial is indeed coming.

Fifth Circuit

Perkins v. United Surgical Partners Int’l, No. 23-10375, __ F. App’x __, 2024 WL 1574342 (5th Cir. Apr. 11, 2024) (Before Circuit Judges Jones, Barksdale, and Elrod). Participants of the United Surgical Partners International 401(k) pension plan sued United and the plan’s administrative committee for mismanaging investments and failing to control costs in violation of their fiduciary duties under ERISA. The district court dismissed the complaint for failure to state claims pursuant to Federal Rule of Civil Procedure 12(b)(6), determining that plaintiffs’ allegations failed to support plausible duty of prudence of duty to monitor claims. The participants appealed the dismissal to the Fifth Circuit in the wake of the Supreme Court’s decision in Hughes v. Northwestern University, 595 U.S. 170, 142 S.Ct. 737 (2022). The Fifth Circuit agreed with the participants’ reading of Hughes and accordingly reversed the district court’s dismissal and remanded to it for further proceedings in accordance with this decision. At the pleading stage, the court of appeals agreed, plaintiffs’ complaint sufficiently alleged that funds identical to those offered by the plan existed which had lower share costs. These allegations were enough under Hughes, the appellate court found, to infer that the committee breached its duties to the participants. It also clarified that district courts may not favor the fiduciaries’ explanations or justifications for their decisions at this stage of litigation. The Fifth Circuit expressly stated, “defraying recordkeeping costs is not the only plausible explanation for United’s decision to include retail shares. Indeed, another plausible explanation is that the Committee included retail shares in the Plan due to mismanagement.” Moreover, the court of appeals disagreed with defendants that plaintiffs’ allegations about comparative recordkeeping costs and services were insufficient to survive dismissal. This was especially true where, as here, plaintiffs compared the recordkeeping costs for similar services provided to plans of a similar size. Based on the foregoing, the Fifth Circuit concluded that the district court erred in dismissing the complaint at this early stage of litigation.

Eighth Circuit

Lacrosse v. Jack Henry & Associates, Inc., No. 23-CV-05088-SRB, 2024 WL 1578899 (W.D. Mo. Apr. 10, 2024) (Judge Stephen R. Bough). Plaintiff Guy Lacrosse, an employee of Jack Henry & Associates, Inc. and a participant in its 401(k) retirement savings plan, initiated this putative class action against the plan’s fiduciaries for failing to prudently monitor and control the recordkeeping and administrative service fees of the third-party service providers to ensure they were objectively reasonable. Defendants moved to dismiss the class action complaint for failure to state a claim. Their motion was wholly denied by the court in this order. The court’s conversation began with a discussion on the appropriate pleading standard in the Eighth Circuit. In Braden v. Wal-Mart Stores, Inc. the Eighth Circuit explained that district courts should be cognizant of the fact that ERISA plaintiffs lack inside information until discovery commences, and consider their limited access to crucial information. “If plaintiffs cannot state a claim without pleading facts which tend systemically to be in the sole possession of defendants, the remedial scheme of the statute will fail, and the crucial rights secured by ERISA will suffer. These considerations counsel careful and holistic evaluation of an ERISA complaint’s factual allegations before concluding hey do not support a plausible inference that the plaintiff is entitled to relief.” Taking this guidance to heart, the court here evaluated the complaint and concluded that it was sufficient to infer the alleged wrongdoing. Specifically, the court was satisfied that at the motion to dismiss stage the allegations plausibly allege the plan and the comparator plans provided the same recordkeeping and administrative services with the sole difference being cost, that the comparator plans were sufficiently similar to the plan at issue in terms of assets and their numbers of participants, and that defendants did not engage in completive bidding or proper oversight. It therefore declined to dismiss either the duty of prudence or the derivative duty to monitor claims, leaving the putative class action complaint intact.

Class Actions

Tenth Circuit

McFadden v. Spring Commc’ns, No. 22-2464-DDC-GEB, 2024 WL 1533897 (D. Kan. Apr. 8, 2024) (Judge Daniel D. Crabtree). Three retiree participants of the Sprint Retirement Pension Plan sued Sprint Communications, LLC and the Sprint Communications Employee Benefits Committee on behalf of themselves and similarly situated individuals for violations of ERISA. Plaintiffs allege defendants caused them to lose their vested retirement benefits through their calculations for joint and survivor annuity benefits using outdated actuarial mortality assumptions, interest rates, and an unreasonable seven-year setback period. They maintain that these inputs meant the joint and survivor annuity benefits were not equivalent to the single life annuity benefits offered to plan participants in violation of ERISA’s actuarial equivalency and anti-forfeiture statutes. On September 6, 2023, the parties participated in mediation and reached an agreement in principle to a $3.5 million settlement. Plaintiffs here moved unopposed for preliminary settlement approval and preliminary certification of the settlement class. The court granted the Rule 23 preliminary settlement motion in this order. It began with Rule 23 class certification of the class of participants and beneficiaries of the plan “who began receiving a 50%, 75%, or 100% JSA or a GPSA on or after November 11, 2016.” The court first analyzed the settlement class under Rule 23(a). It determined that the 1,009 class members satisfied numerosity, common questions of law and fact around the joint and survivor annuity formulas unite the class members, the named plaintiffs were harmed in the same way as the other class members and were therefore typical of the class, and the named plaintiffs and their counsel were adequate representatives to serve the interest of the absent class members. The court then scrutinized the class under Rule 23(b)(1)(A). It ultimately agreed with plaintiffs that serial actions could produce contradictory obligations and “such an outcome is particularly troubling in the ERISA context given that the statute requires like treatment of the class.” Thus, the court found certification under Rule 23(b)(1)(A) appropriate, and granted the motion for class certification for settlement purposes. Next, the court turned to its evaluation of the fairness and adequacy of the proposed settlement itself. It ruled (1) the parties fairly, honestly, and in good faith negotiated the terms of the settlement; (2) the ultimate outcome of the litigation is not certain; (3) the value of the settlement recovery is proportional and appropriate when weighing the potential “for future relief after protracted and expensive litigation”; and (4) the parties agree that the settlement is fair and reasonable. Weighing these factors together the court was satisfied that the settlement should be preliminarily approved. In addition, the court found the proposed notice itself to be informative, clear, and easily understood. It also accepted the proposed manner of notice, particularly as each class member is already receiving pension benefits and is therefore easy to contact and inform. Finally, the court set the settlement schedule, outlined the procedures to submit objections to the settlement, and stayed the pending litigation.

Disability Benefit Claims

Fourth Circuit

Wonsang v. Reliance Standard Life Ins. Co., No. 1:23-cv-1 (RDA/IDD), 2024 WL 1559292 (E.D. Va. Apr. 10, 2024) (Judge Rossie D. Alston, Jr.). At the time of her disability onset, plaintiff Rebecca Wonsang was employed as a physical therapist. Ms. Wonsang stopped working on May 13, 2016 due to symptoms from fibromyalgia, chronic fatigue, Epstein-Barr virus, IBS, migraines, and joint, back, and neck pain from cervical herniated discs. Defendant Reliance Standard Life Insurance Company approved Ms. Wonsang’s short-term disability benefits, and later, on September 29, 2016, approved her claim for long-term disability benefits. Reliance’s in-house reviewing nurse confirmed that Ms. Wonsang was totally disabled from her own occupation because she is precluded from engaging in sustained physical activity and because she was experiencing poor cognitive abilities and mental fogginess. Reliance paid Ms. Wonsang’s long-term disability claim through the duration of the “regular occupation” period of the policy. However, once benefit eligibility transitioned to the “any occupation” period, Reliance terminated Ms. Wonsang’s benefits, concluding there was insufficient evidence to support a finding that Ms. Wonsang was impaired to the point of holding down any job. Ms. Wonsang challenges that decision in this action. The court in this decision ruled on the parties’ cross-motions for summary judgment, entering judgment in favor of Ms. Wonsang and restoring her benefits. Before it reached a discussion of the merits, the court resolved two preliminary disputes – the timeliness of Ms. Wonsang’s action and the applicable standard of review. First, it concluded that the action was timely. It was in fact Reliance that the court found to be untimely with its review. The court reiterated that ERISA imposes a 45-day window for a claim administrator to issue a benefit decision. Here, Reliance did not provide an appeal decision within the applicable time period nor provide notice of the need for an extension. Accordingly, the court determined that the lawsuit was not premature, even though Reliance failed to conduct its requested independent medical exam. Second, the court ruled that Reliance’s failure to render a timely appeal decision transformed the applicable review standard from abuse of discretion to de novo. “Reliance’s failure to issue a benefits decision within the 45-day period does not constitute a minor irregularity or ‘substantial compliance with the required procedures’…Rather, Reliance failed to comply with the required procedures such that de novo review is appropriate.” Having settled these preliminary issues, the court addressed the relevant merits of each party’s positions. The court determined that Reliance’s “minimalist approach” to processing its decision, basing its denial exclusively on its reviewing nurse’s opinions on the papers, was unpersuasive and inappropriate. Rather, the court felt it was Ms. Wonsang who had the stronger arguments and evidence to support her position. In the end the court agreed with her that her cumulative symptoms left her unable to sustain any work. This was especially true, the court added, because Reliance relied on post-hoc denial rationales including a new argument in court based on the plan’s limitation period for mental health disorders. The remaining issue was the appropriate remedy. “Here, Reliance has failed to live up to its fiduciary duty as mandated under ERISA. Further, the Court does not find Reliance’s failure to timely issue an appeals decision or its failure to include the Limitation prior to this litigation to be ‘procedural.’…Therefore, without deciding the specific amount due, the appropriate remedy is to award benefits to Wonsang from March 26, 2022 to present day.” Finally, Ms. Wong was instructed to file a motion for attorney’s fees and costs.

Discovery

Tenth Circuit

Macias v. Sisters of Charity of Leavenworth Health Sys., No. 1:23-cv-01496-DDD-SBP, 2024 WL 1555061 (D. Colo. Apr. 10, 2024) (Magistrate Judge Susan Prose). Participants of ERISA-governed defined contribution pension plans filed this putative class action against the plans’ fiduciaries for breaches of their duties managing the plans and their funds. Before the court was defendants’ Rule 26(c) motion to hold discovery in abeyance during the pendency of their motion to dismiss. Magistrate Judge Susan Prose granted the motion to stay. The Magistrate ruled that staying discovery would not burden plaintiffs, while allowing discovery to continue would unduly burden defendants and the court. In particular, the court stressed “that discovery in a matter where class claims encompass a years’ long period would be broad and complex.” And while the court acknowledged that discovery does not ordinarily pose an undue burden on defendants, it distinguished class action lawsuits, finding them fundamentally different due to “the breadth of class action discovery” and their “elevated burden” should a stay not be granted. Additionally, it was the court’s opinion that staying discovery would be to its benefit by making its docket more predictable and manageable. Thus, the motion was granted, and discovery is stayed until the court resolves the pending motion to dismiss.

ERISA Preemption

First Circuit

Tutungian v. Massachusetts Elec. Co., No. 24-10228-FDS, 2024 WL 1541094 (D. Mass. Apr. 9, 2024) (Judge F. Dennis Saylor IV). After his supplemental life insurance policy was cancelled, plaintiff Daniel Tutungian filed a state law civil action against Massachusetts Electric Company seeking to regain coverage. Assuming the life insurance policy is an ERISA-governed plan, defendant removed the action to federal court on the basis of ERISA complete preemption. Mr. Tutungian moved to remand the action to state court. His motion was denied in this decision. The court held that under the Supreme Court’s Davila test, Mr. Tutungian’s claims could have been brought under ERISA and there is no independent legal duty. It stressed that the complaint is in essence a judicial challenge seeking restoration of ERISA life insurance benefits. The court ruled that restoration of coverage is a remedy provided by ERISA’s remedial scheme. It also agreed with defendant that the life insurance policy did not fall under ERISA’s voluntary plan safe harbor exemption because all the MetLife life insurance policies were treated as one unit with one certificate and group number. “As the First Circuit has explained, it is ‘both impractical and illogical to segment insurance benefits that are treated as a single group and managed together, potentially placing some under ERISA and some outside the statute’s scope.’” Thus, because the court held that ERISA preempts the state law claims and the safe harbor exemption does not apply, it concluded that it has exclusive subject matter jurisdiction over this dispute and therefore denied the motion to remand.

Second Circuit

Brian & Spine Surgery, P.C. v. Int’l Union of Operating Eng’rs Local 137 Welfare Fund, No. 23-CV-6145 (ARR) (LGD), 2024 WL 1550411 (E.D.N.Y. Apr. 10, 2024) (Judge Allyne R. Ross). Plaintiff Brain and Spine Surgery, P.C. provided successful surgery on a patient covered under an ERISA-governed healthcare plan, the International Union of Operating Engineers Local 137 Welfare Fund. Each of the two surgeons billed over $350,000 for the medical services provided. The Fund faxed over two payment proposals, one for $80,760 for one of the surgeons and one for $24,228 for the other surgeon’s services. Each agreement stated that these amounts were the maximums allowed under the plan. Brain and Spine Surgery received these proposals and executed and returned the two agreements. However, the Fund has yet to pay the amounts it offered in the agreements. In this action, Brain and Spine Surgery has sued the Fund and its administrator in New York state court for breach of contract and unjust enrichment, seeking payment for its services. Defendants removed the action to federal court, arguing ERISA preempts plaintiff’s claims. The provider moved to remand its action. Here, the court denied the motion to remand, and determined that the unjust enrichment claim was completely preempted by ERISA. Under the doctrine of complete preemption, the court employed the two-part Davila test to determine that Brain and Spine Surgery had derivative standing to sue under ERISA, the unjust enrichment claim, as framed in the complaint, is a colorable claim for benefits, and it does not implicate an independent legal duty. Overall, the court concluded that the unjust enrichment claim is dependent on the ERISA plan, as the obligation to pay the claims arises from the plan. In this case, the court understood the complaint as fundamentally seeking a right to a payment tied to services covered under an ERISA-governed plan. “As such, plaintiff’s claim for the reasonable value of its services does not involve a mere cursory review of an ERISA plan to determine the applicable rate of pay for a given medical service.” Accordingly, the court agreed with defendants that the unjust enrichment claim was completely preempted. It then declined to decide whether the breach of contract claims were preempted too, and instead opted to exercise supplemental jurisdiction over them. For these reasons, the court maintained jurisdiction over the action and denied the motion to remand.

Medical Benefit Claims

Third Circuit

DeMarinis v. Anthem Ins. Co., No. 3:20-CV-713, 2024 WL 1557379 (M.D. Pa. Apr. 10, 2024) (Judge Robert D. Mariani). Plaintiff Chris DeMarinis sued the administrator of his ERISA-governed healthcare plan, Anthem Insurance Companies, Inc., to challenge the plan’s denial of his teenage son’s stay at an inpatient neurobehavioral unit. The boy, D.D., has non-verbal autism and a severe intellectual disability. In the spring of 2019, D.D. was hospitalized following violent behavior and then sent to the inpatient neurobehavioral center for intensive rehabilitative treatment. Mr. DeMarinis contends that Anthem should cover the cost of D.D.’s treatment from May 8, 2019 to October 24, 2019 in the amount of $459,318, plus reasonable attorneys’ fees and costs. The parties filed cross-motions for summary judgment under arbitrary and capricious review. In this order the court denied Anthem’s summary judgment motion, and granted in part plaintiff’s motion for summary judgment. The court ruled that Anthem’s position that D.D. was not at risk of harming himself or others as of May 8, 2019 was simply inaccurate and not supported by the medical records. Moreover, Anthem’s own medical reviewers contradicted themselves by acknowledging in their notes that there was no change in D.D.’s condition from the time he was admitted to the hospital to May 8, 2019. The court also found that Anthem failed to adequately consider the opinions of D.D.’s team of treating physicians, Anthem failed to consider all relevant diagnoses and aspects of D.D.’s complicated medical situation, and the reviewer Anthem hired was not in fact independent or neutral. To the court, the medical records did not substantially support Anthem’s denial. Instead, they demonstrated clearly that D.D. continued to be at risk of serious harm without the proper medically necessary intervention. “For the foregoing reasons, the Court concludes that Anthem’s decision to deny coverage from May 8, 2019, forward exhibits an irregularity that suggests its decision was arbitrary and capricious.” After viewing everything as a whole, including the procedural failings of the denial letters, the court entered judgment in favor of Mr. DeMarinis on his benefit claim. Further, the court determined that an award of benefits was the appropriate remedy for Anthem’s denial. The court further agreed with plaintiff that he had properly administratively exhausted the denials before bringing suit and that he did not need to submit continuous bills for the already denied treatment ad nauseam. Thus, the court found Mr. DeMarinis had diligently pursued administrative relief and further efforts to do so would have been futile because the benefits determination was fixed. In all likelihood, “Anthem would have continued to improperly find a lack of serious harm.” However, despite the court’s conclusion that the family was entitled to an award of benefits for some period beyond the date when they stopped submitting bills to Anthem, it ultimately determined that it needed to remand to Anthem to determine the extent to which coverage should have been extended. Therefore, for coverage beyond July 7, 2019, plaintiff was directed to resubmit relevant medical records for Anthem’s review and Anthem was ordered to expeditiously conduct a medical necessity evaluation of those records consistent with this decision. Mr. DeMarinis was also instructed by the court to file a motion for attorneys’ fees and costs.

Ninth Circuit

Dan C. v. Anthem Blue Cross Life and Health Ins. Co., No. 2:22-cv-03647-FLA (AJRx), 2024 WL 1533636 (C.D. Cal. Apr. 9, 2024) (Judge Fernando L. Aenlle-Rocha). This is a particularly harrowing mental healthcare action involving denied claims for residential treatment benefits of an adopted nine-year old Haitian boy who was orphaned following the death of his biological mother. This trauma in early age left the child with severe behavioral and mental health problems, including violent behaviors that could only be safely treated in a residential setting. The child’s father, Dan. C., a participant of the Director’s Guild of America welfare plan, sued the Director’s Guild and Anthem Blue Cross, the claim administrator, for wrongful denial of benefits and breach of fiduciary duty for failure to provide a full and fair review. On January 3, 2024, the court held a bench trial in this case. In this decision it issued its findings of fact and conclusions of law and entered judgment on both counts in favor of Dan C. under de novo review. The court agreed with plaintiff that defendants were guilty of cherry-picking favorable treatment notes from the records while ignoring the sometimes shocking evidence in the record demonstrating the child’s “risky and dangerous behavior, impaired judgment, and emotional difficulties that could not have been managed without residential treatment, due to his violent and threatening nature and impaired daily functioning.” As the court noted, many of these violent events continued long after the denial. It was therefore the court’s opinion that continued residential treatment was medically necessary for the boy because he posed a risk of danger to himself and others without this intervention and because he was unable to function outside of the residential setting. Accordingly, the court determined that the father was entitled to full benefits. Moreover, the court found for the father on his full and fair review claim. It stated that defendants disregarded relevant medical evidence, failed to engage with the voluminous medical records, failed to consult the treatment providers, and, perhaps most egregiously, engaged the same doctor for both the first and second-level review. “Even more troubling is that Dr. Holmes certified in his second report that he had ‘not had any prior involvement in the denial/appeal process for the case,’ …when he had authored a report…in the same case less than one month prior.” The court further observed that the benefits committee acted improperly when they denied the claim because they were not in possession of Dr. Holmes’ medical credentials. For these reasons, the court found that the denial was not a full and fair review of plaintiff’s claim for benefits. Thus, the court entered judgment in plaintiff’s favor and informed him that he may bring a motion for attorney’s fees pursuant to Section 502(g)(1).

Pension Benefit Claims

Fourth Circuit

Hudson v. Plumbers & Steamfitters Local No. 150 Pension Fund, No. 8:23-cv-6422-JDA, 2024 WL 1526609 (D.S.C. Apr. 5, 2024) (Judge Jacquelyn D. Austin). Plaintiff Allen B. Hudson, a retired and disabled member of the Plumbers and Steamfitters Local Union No. 150, brought this action challenging the union’s denial of his full pension benefits. Mr. Hudson alleges that the union, its pension fund, and the plan’s claims administrator violated ERISA by altering his employment records and failing to credit military service years in order to reduce his vested pension benefits, despite previously confirming “that he had fully and irrevocably vested in the Plan.” The union moved to dismiss the complaint for failure to state a claim. Specifically, the union argued that its motion should be granted because it is not the pension fund or plan administrator and therefore not a proper defendant in a Section 502(a)(1)(B) action, and that it was not acting in a fiduciary capacity with respect to any of the activity alleged in Mr. Hudson’s complaint, meaning his Sections 502(a)(2) and (a)(3) fiduciary duty claims should likewise be dismissed. The court disagreed. At this juncture, the court accepted the allegations in the complaint that the union had fiduciary control over the plan’s administrator. By contrast, the court noted that the union presented no countervailing evidence to undermine Mr. Hudson’s allegations. Through this lens, the court found that Mr. Hudson had pled enough to withstand the union’s motion to dismiss. 

Pleading Issues & Procedure

Fourth Circuit

Penland v. Metropolitan Life Ins. Co., No. No. 22-1720, __ F. App’x __, 2024 WL 1528957 (4th Cir. Apr. 9, 2024) (Before Circuit Judges Wynn, Harris, and Benjamin). Plaintiff-appellant Tracy W. Penland sued Metropolitan Life Insurance Company (“MetLife”) to challenge its termination of his long-term disability benefits. Employing a “quasi-summary-judgment” approach and reviewing the termination decision de novo, the court made factual findings to affirm MetLife’s determination that Mr. Penland’s conditions not subject to the plan’s “neuromuscular, musculoskeletal and soft tissue” 24-month limitation were not disabling. Importantly, the district court did not state, indicate, or suggest in its decision that it was making its factual findings pursuant to a bench trial under Federal Rule of Civil Procedure 52. “Nor did it style its opinion to comport with the requirements of that rule.” However, after the district court issued its ruling in this action there was an intervening change in controlling law in the Fourth Circuit. That change came from the appeals court’s decision in Tekmen v. Reliance Standard Life Ins. Co., 55 F.4th 951 (4th Cir. 2022), wherein the court rejected the quasi-summary-judgment procedure and clarified the need for a bench trial pursuant to Rule 52 in ERISA benefit disputes. (Kantor & Kantor LLP was appellate counsel for plaintiff in the Tekmen case, which Your ERISA Watch covered as the week’s notable decision in our December 21, 2022 newsletter.) The Fourth Circuit explained that summary judgment “is reserved for cases in which there is no genuine issue of material fact.” Where a district court must make factual findings that implicate a genuine material issue, summary judgment is not appropriate and a Rule 52 trial is required. The court of appeals reasoned that “a district court’s fact-finding in the guise of summary judgment would be subject, like other summary judgment rulings, to de novo review on appeal – requiring ‘redundant factfinding by the appellate courts’ and giving ‘district courts little reason to invest the time in factfinding necessary in cases with genuine disputes of material fact.’” The appellate court observed that because “this court’s important clarification in Tekmen came only after the district court’s ruling here,” the district court “through no fault of its own” issued a decision “bearing the hallmarks of the modified summary judgment approach” in conflict with the rules established in Tekmen. The Fourth Circuit was unwilling to assume for the sake of efficiency that the district court’s summary judgment fact-finding exercises weighing the evidence and making credibility judgments amounted to a Rule 52 bench trial. Rather, it concluded that reviewing the district court’s decision “would entail review under a deferential ‘clearly erroneous’ standard that neither the parties nor the court would have anticipated while this case was before the district court.” Thus, it ruled that the appropriate approach to ensure fairness under the circumstances was to vacate the district court’s judgment and remand to it for a Rule 52 bench trial consistent with Tekmen.

Standard of Review

Ninth Circuit

K.G. v. University of S.F. Welfare Benefit Plan, No. 23-cv-00299-JSC, 2024 WL 1589980 (N.D. Cal. Apr. 11, 2024) (Judge Jacqueline Scott Corley). The court ruled on the appropriate standard of review in this healthcare benefit case. Of the four potentially relevant documents presented by defendant University of San Francisco Welfare Benefit Plan, the court determined that two, the Master Document and the 2020 Benefit Booklet, made up the written plan document during the relevant period. With regard to the Master Document, the court determined that it failed to unambiguously delegate Anthem discretion to determine benefit eligibility or interpret plan terms. As for the Benefit Booklet, the court wrote that it “simply does not clearly indicate that Anthem has discretion to grant or deny benefits.” Without a clear and unambiguous delegation of discretionary authority, the court ruled that the documents failed to warrant departure from the default de novo standard of review.

Venue

Fourth Circuit

Hudson v. Plumbers & Steamfitters Local No. 150 Pension Fund, No. C. A. 8:23-cv-6422-JDA, 2024 WL 1506776 (D.S.C. Apr. 5, 2024) (Judge Jacquelyn D. Austin). This is the second decision this week in this case; see above (under “Pension Benefit Claims”) regarding the court’s denial of the defendant union’s motion to dismiss. To recap, a retired disabled welder, plaintiff Allen B. Hudson, sued his former union, the Plumbers & Steamfitters Local No. 150, its Pension Fund, and Southern Benefits Administrators, Inc., challenging the fund’s decision to deny him full pension benefits. According to his complaint, defendants altered his punch cards from 1967, 1975, and 1976 to reflect 9.875 years of vested service rather than the proper ten years of vested service which is needed to receive full pension benefits. Mr. Hudson also argues that the union is in violation of federal law as well as the terms of the plan because it failed to credit him with three years of military service. In this decision the court ruled on defendants’ motion to transfer venue to the Middle District of Tennessee, the venue where the plan in administered. The motion to transfer was denied. Of note, the court found the judicial economy factor and Mr. Hudson’s choice of forum both significantly weighed against transfer. As to the former, the court stressed that is “has spent time considering [pending discovery and pleading] motions, and it would be inefficient for another court to have to duplicate that work.” Regarding the latter, the court highlighted that plaintiff’s choice of forum, particularly when it is his or her home forum, must be given strong weight under ERISA’s liberal venue provision. This was particularly true in the present action where Mr. Hudson contended that he “is a 73-year-old retiree and Army veteran with substantial health issues…disabled due to his exposure to beryllium throughout his career…Additionally, his resources are limited, particularly in light of the denial of his pension benefits…By contrast, the[] Defendants are well-funded organizations who have each already hired counsel in the [District of South Carolina], all of whom practice in South Carolina or have been admitted pro hac vice.” Under these circumstances, the court did not find it in the interest of justice to transfer Mr. Hudson’s action to Tennessee.

We hope all of our readers had a chance to gaze up in wonder this week to witness the solar eclipse. Unfortunately, we did not spot a decision worthy of this awe-inspiring celestial event. But, as always, this week brings us decisions on many important ERISA issues, so keep reading for the ones that inspire you.

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

Breach of Fiduciary Duty

First Circuit

Lalonde v. Massachusetts Mut. Life Ins. Co., No. 22-30147-MGM, 2024 WL 1346027 (D. Mass. Mar. 29, 2024) (Judge Mark G. Mastroianni). To understand this lawsuit, you have to first consider another: a 2013 class action lawsuit called Gordan v. Massachusetts Mut. Life Ins. Co. Gordan challenged the actions of the fiduciaries of the MassMutual Thrift 401(k) Plan. It alleged that the individuals responsible for managing the plan “imposed unreasonable record keeping and administrative costs, selected unreasonably priced and imprudent investment options, caused the plan to engage in prohibited transactions, failed to administer the plan in accordance with its governing documents, and failed to monitor fiduciaries.” The Gordan case ended in 2016 with a settlement of over $30 million. This complaint, brought by plaintiff Judy Lalonde, a former MassMutual employee and a beneficiary of the plan, alleges that mismanagement has continued. “According to Plaintiff, on December 4, 2016, just hours after the Gordan settlement took effect, MassMutual began violating its ERISA obligations by once again failing to offer prudent investment options and failing to meet fiduciary obligations of loyalty.” Ms. Lalonde asserted claims for breaches of fiduciary duties and prohibited transactions. Defendants moved to dismiss the complaint in its entirety. Their reasons for dismissal were threefold. First, defendants argued that, as a member of the Gordan class, Ms. Lalonde had actual knowledge sufficient to trigger ERISA Section 1113(2)’s three-year statute of limitations, rendering her claims untimely. Second, they asserted that the settlement agreement in Gordan either bars Ms. Lalonde’s action entirely or restricts the complaint’s allegations to events occurring after December 3, 2020 (the date when the Gordan court’s period of continuing exclusive jurisdiction expired). Finally, defendants argued for dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6), stressing Ms. Lalonde could not plausibly state claims upon which relief may be granted. Starting with its statute of limitations amuse bouche, the court agreed with defendants that Ms. Lalonde’s prohibited transaction claims were time-barred. “Plaintiff’s prohibited transactions claims all turn on the plan’s inclusion of proprietary funds in the investment lineup. According to Plaintiff, these funds were part of the plan as early as December 31, 2016.” The court also stated that it was clear from the face of the complaint that Ms. Lalonde had actual knowledge of these proprietary funds as she invested in them. More to the point, Ms. Lalonde, as a member of the class in the Gordan lawsuit which dealt with similar allegations of self-dealing, could not plausibly argue she was unaware the plan contained proprietary funds. Accordingly, the court dismissed the two prohibited transaction claims as barred by the statute of limitations. For an appetizer, the court indulged in the impact of Gordan on Ms. Lalonde’s litigation. Taking a first bite, the court disagreed with Ms. Lalonde’s reading of the settlement agreement’s release terms to “specifically exclude…claims arising from conduct outside of the Class Period.” The court criticized Ms. Lalonde’s reading of the text. It found that the plain text of the settlement did not support her position, and instead held that the relevant modifying phrase “claims arising from conduct outside of the Class Period” referred only to the prefatory clause’s mention of “labor or employment claims unrelated to the Plans.” Second, the court disagreed with Ms. Lalonde that the Gordan settlement agreement eliminated defendants’ fiduciary obligations in violation of ERISA Section 1110(a)’s anti-exculpatory provision. Defendants, the court found, remained bound by ERISA’s fiduciary obligations under the terms of the settlement. All the settlement did was channel the method of raising liability through the district court judge who approved the settlement. “Allowing Plaintiff to circumvent this mechanism and launch a collateral attack on the terms of the settlement would entangle plan fiduciaries in perpetual litigation.” Therefore, the court ruled that Ms. Lalonde could only “rely on conduct arising after December 2, 2020” in her complaint. Digging into the main course, the court explored the sufficiency of the breach of fiduciary duty claims under Rule 12(b)(6). This portion of the decision was your bog-standard discussion of insufficient benchmarks. In sum, the court relied on out-of-circuit decisions to guide it to the conclusion that Ms. Lalonde’s comparisons relied on the benefits of hindsight to reveal “a modest differential in performance,” insufficient to infer imprudence, disloyalty, or a failure to monitor. These claims were thus dismissed, without prejudice, and defendants’ motion was granted and wholly successful.

Jackson v. New Eng. Biolabs, Inc., No. 23-12208-RGS, 2024 WL 1436048 (D. Mass. Apr. 3, 2024) (Judge Richard G. Stearns). When it comes to Employee Stock Ownership Plans (“ESOPs”) one question presents itself over and over again – what is the fair market value for stock which is not actually on the market? The uncertainty of the answer is part of the problem and part of the reason why ESOPs are vulnerable to stock price manipulation. Even the fiduciaries of the New England Biolabs, Inc. Non-Voting Stock Ownership Plan, the defendants in this litigation, conceded in their motion to dismiss that “[t]here is continuing controversy surrounding the extent to which a lack of marketability discount should be applied in ESOP valuations.” In this action two former employees of New England Biolabs who participated in the plan have sued the fiduciaries on behalf of a putative class for breaches of fiduciary duties, prohibited transactions, and violations of ERISA’s anti-cutback provision. At the center of their action are amendments made to the ESOP in 2019 which “automatically convert[ed] to cash any NEB shares allocated to former employees.” In addition, the amendments eliminated the plan’s put options which had previously permitted a participant “within 60 days of their 60th or 65th birthday, to require NEB to purchase shares that ‘were distributed under Article 8’ of the Plan at their ‘fair market value.’” The compulsory divestments occurred one month after the 2019 amendments. According to the complaint, the timing was important. Both plaintiffs’ ESOP accounts were converted to cash and transferred to the plan’s dollar accounts in September 2019. The value of the stock had appreciated 27% between September 30, 2018, and September 30, 2019. “But because the 2019 Amendment was adopted before the end of the 2019 Plan Year, plaintiffs’ Employer Stock Accounts were liquidated using the considerably lower NEB share price as determined on September 30, 2018.” Thus, the compulsory divestments gave the plan liquid assets, and financially harmed the plaintiff retirees. Defendants moved to dismiss all counts. They argued that plaintiffs lacked standing and that their complaint failed to state claims upon which relief could be granted. The court granted in part and denied in part the motion to dismiss. Beginning with a discussion of standing, the court stated that it agreed with defendants that plaintiffs lacked standing to assert their put option claims. “Defendants argue that plaintiffs suffered no consequential injury in fact because plaintiff had taken no distributions of NEB stock before the 2019 Amendment was adopted. Plaintiffs do not allege that they received (or even requested) a stock distribution under Article 8. It follows that they had no right to exercise the put options. Plaintiffs thus lack standing to challenge the loss of the put options.” The court then moved on to evaluate the sufficiency of the remaining alleged claims. It first considered the prohibited transaction claims. These claims alleged that defendants amended the plan and purchased employees’ shares of stock to infuse the Plan with cash. The court found that plaintiffs plausibly alleged their Section 406 claims against the Trustee defendants and New England Biolabs for claims pertaining to 2019 but not 2017 or 2018. The court relied on the plan’s Form 5500s to conclude that to the extent the prohibited transaction claims implicate the 2017 and 2018 fiscal years, they were not sound, because the plan “had ample cash on hand to make the cash distributions without any sale of stock to NEB.” However, the court stated that the year 2019 was different because, unlike in 2017 and 2018, the plan did not have sufficient cash on hand to make the distributions requested in 2019 and so amended the plan to force stock purchases from retirees. Thus, to the extent the prohibited transaction claims pertained to the events of 2019, the court denied the motion to dismiss. Next, the court broke down the fiduciary breach claims into three principal allegations; (1) the failure of Trustee and Committee defendants to investigate the fair market value of the shares; (2) the failure of the Trustee and Committee defendants to adjust the valuation date of the stock price before liquidating the retiree’s accounts; and (3) the failure of New England Biolab to oversee the Trustee and Committee defendants. The court concluded that plaintiffs plausibly alleged that the fiduciaries failed to investigate fair market value but that the complaint did not state a claim for failing to re-calendar the valuation date. The court held that choosing a different valuation date would have required defendants “to ignore the unambiguous terms of the Plan document.” As for the derivative failure to monitor and co-fiduciary liability claims, the court allowed both to continue based on the underlying breach of fiduciary duty claim for failure to investigate the fair market value of the New England Biolab stock. The decision then discussed the anti-cutback claim. It found that New England Biolab did not violate the anti-cutback rule “by eliminating plaintiffs’ ability to hold NEB stock in the Plan,” nor by liquidating plaintiffs’ accounts. Finding no unlawful cutback, the court dismissed the Section 204(g) claim. Finally, the court examined plaintiffs’ requested forms of equitable relief – declaratory and injunctive relief –  pursuant to Section 502(a)(3). Here, the decision circled back to where it began, with another discussion of standing. “The problem for plaintiffs is that they lack standing to pursue these forms of equitable relief…The only viable claims that plaintiffs have involve alleged injuries to the Plan. The equitable relief that plaintiffs seek – a declaration that the 2019 Amendment is invalid as to them and an order requiring administration of the Plan consistent with the 2013 Plan Document – would redress injuries that plaintiffs, not the Plan suffered. The incongruity between the injury the Plan suffered and the harm this equitable relief would redress is fatal to the plaintiffs’ § 502(a)(3) claim.”

Second Circuit

Sarno v. Sun Life & Health Ins. Co. (U.S.), No. 22-CV-968 (JMA) (LGD), 2024 WL 1364341 (E.D.N.Y. Mar. 31, 2024) (Judge Joan M. Azrack). Plaintiff Cathleen Sarno seeks to redress harm caused by the actions of defendants Nikon Inc., the Nikon Inc. Employee Benefit Plan, and Sun Life & Health Insurance Company while her husband was dying from stage IV terminal pancreatic cancer. According to the complaint, defendants did not inform Mr. Sarno of the life insurance plan’s generous Accelerated Benefit, “which Mr. Sarno was qualified to receive and which would have provided a payment of $500,000 before his death.” The complaint further alleges that defendants frustrated and misled Mr. Sarno during their communications with him about his conversion rights and the deadline to submit his application to convert his policy to an individual policy. Because of these actions, the Sarno family lost out on hundreds of thousands of dollars in life insurance benefits. Defendants Nikon Inc. and the Nikon plan moved for dismissal. (Defendant Sun Life did not file a motion to dismiss.) Magistrate Judge Lee G. Dunst issued a report and recommended that the motion be granted and all the claims against the Nikon defendants be dismissed without prejudice. Ms. Sarno objected to the Magistrate’s report. In this order the court adopted in part and overruled in part the Magistrate’s recommendations. Specifically, the court dismissed Counts 1 and 2, the breach of fiduciary duty claims asserted under Section 502(a)(3), asserted against the plan. Additionally, the court dismissed the second fiduciary breach claim and the Section 502(a)(1)(B) benefit claim, against Nikon. To begin, the court disagreed with the Magistrate’s position that the (a)(3) claims were seeking relief duplicative of the (a)(1)(B) claim. To the contrary, the court agreed with Ms. Sarno that equitable forms of monetary relief, including surcharge and reformation, may be available to her to redress the harms alleged in the complaint, even if her claim for benefits under Section 502(a)(1)(B) is ultimately unsuccessful. Instead, the court dismissed Ms. Sarno’s causes of action for failure to state claims, pursuant to Rule 12(b)(6). Analyzing Count 1, the court concluded that the complaint plausibly alleges that Nikon representatives did not inform Mr. Sarno of the accelerated death benefit in breach of their fiduciary obligations to do so. As a result, the court denied Nikon’s motion to dismiss Count 1. However, the court dismissed both breach of fiduciary duty claims (Counts 1 and 2) as asserted against the Plan, because a plan is not a fiduciary. The court also dismissed Count 2 against Nikon. In contrast to the first breach of fiduciary duty claim, the second claim “primarily focused on the acts and omissions of Sun Life concerning Mr. Sarno’s attempts to convert his Group Policy.” The court ruled that Nikon wasn’t liable for Sun Life’s actions or omissions and that Ms. Sarno couldn’t state a claim against Nikon for failure to monitor based on the allegations in the complaint. Nevertheless, the court took the opportunity to clarify that should discovery uncover “any additional facts that would allow Plaintiff to plausibly allege that Nikon is liable under Count 2 the court may permit Plaintiff to amend the complaint accordingly.” Finally, the court dismissed the Section 502(a)(1)(B) benefit claim against Nikon, because the complaint failed to plausibly allege that Nikon was the party responsible for denying the claim for benefits. The court otherwise denied the motion to dismiss. All of the claims which were dismissed were dismissed without prejudice.

Ninth Circuit

Partida v. Schenker Inc., No. 22-cv-09192-AMO, 2024 WL 1354432 (N.D. Cal. Mar. 29, 2024) (Judge Araceli Martínez-Olguín). A former employee of defendant Schenker, Inc. and a participant in its 401(k) Savings and Investment Plan, plaintiff Diego Partida has filed this action on behalf of current and former employees, participants, and beneficiaries of the plan to rectify alleged fiduciary mismanagement and recover losses incurred by those actions. Mr. Partida maintains that the fiduciaries failed to employ a prudent process for selecting and maintaining the plan’s investment options, and that defendants invested in funds with high cost expense-ratios and poor performance histories. Defendants moved to transfer venue to the Eastern District of Virginia. Additionally, defendants filed a motion to dismiss, arguing Mr. Partida does not have standing. They also argued that dismissal was appropriate pursuant to Rule 12(b)(6) for failure to state a claim. The court ruled on both the motion to transfer and the motion to dismiss in this decision. To begin, the court considered the motion to transfer. Weighing the Jones factors, the court found transfer was not appropriate under the circumstances of the case, as it considered most of the factors neutral or weighing against transfer. The court stressed that ERISA is a federal statute, and a claimant may bring an ERISA action in any federal court with a connection to the plaintiff, the defendant, or the allegations at issue. It therefore decided against disturbing Mr. Partida’s choice of forum, his place of residence. Next, the court addressed defendants’ standing arguments. The court wrote that Mr. Partida alleged a concrete financial harm in his investments in one of the plan’s funds and that he therefore has a “direct and substantial interest” in his claims. As such, the court found Mr. Partida had Article III standing to pursue his causes of action. It expressed that defendants’ challenges on these topics would be better addressed during the class certification stage. “Whether Partida will ultimately be allowed to present claims on behalf of others who do not have identical interests is not a question of standing and will depend on ‘an assessment of typicality and adequacy of representation’ that the court does not determine at this stage.” With this threshold question addressed, the court moved on to its analysis of the sufficiency of Mr. Partida’s fiduciary breach claims. Regarding Mr. Partida’s allegations of imprudence, the court wrote, “[d]espite his assertions to the contrary, Partida ultimately attacks the funds’ underperformance, and fails to plead any facts showing how the process in selecting the investments or monitoring the funds was flawed.” Moreover, the court held that Mr. Partida did not sufficiently explain how the better performing funds were appropriate comparators as “he has not provided any factual allegations showing that those funds had the same aims, risks, or potential rewards such that they could be considered meaningful benchmarks.” Additionally, the court dinged the complaint for failing to allege that the challenged recordkeeping and investment fees were excessively costly “relative to the services they actually provided to the plan.” And with regard to allegations of misrepresentations, the court stressed that Partida did “not allege what the misrepresentations were or how he detrimentally relied on [them.]” Accordingly, the court felt that the complaint failed to state a claim for breach of the duty of prudence and therefore dismissed it. Turning to the allegations of disloyalty, the court once again took issue with the sufficiency of the pleadings. “The FAC includes only conclusory allegations that the Plan fiduciaries acted ‘in their own self interest’ and that ‘as a result of their conflicts of interest, Plan fiduciaries selected and retained in the Plan many investment funds that were more expensive than necessary and otherwise were not justified on the basis of their managers and historical performance’…This is insufficient (and) [t]he claim fails on this basis.” Finally, the court dismissed the derivative claim for failure to monitor as well as the prohibited transaction claim. The entirety of the dismissal was without prejudice however, and plaintiff was granted until April 30 to file an amended complaint to address these identified pleading deficiencies.

Disability Benefit Claims

First Circuit

Rogers v. Unum Life Ins. Co. of Am., No. 22-CV-11399-AK, 2024 WL 1466728 (D. Mass. Mar. 31, 2024) (Judge Angel Kelley). Scientist Robert A. Rogers commenced this action against Unum Life Insurance Company after his long-term disability benefit claim was denied. Dr. Rogers suffers from several physical, autoimmune, and psychiatric health conditions. He was granted short-term disability benefits, Family Medical Leave benefits (both the STD and FMLA benefits were administered by Unum), and was awarded disability benefits by the Social Security Administration. However, despite the lack of any evidence of medical improvement, Unum denied Dr. Rogers’ claim for long-term disability benefits. Importantly, Unum’s policies, which were set after a 2004 Regulatory Settlement Agreement with the Department of Labor, require it to give weight to a claimant’s treating physicians and that denial letters “must include specific reasons why the opinion is not well supported by medically accepted clinical or diagnostic standards and is inconsistent with other substantial evidence in the record.” Because Unum’s denials to Dr. Rogers did not comply with this policy, and because Unum failed to explain why it approved FMLA benefits while denying long-term disability benefits, the court denied Unum’s motion for summary judgment, even under deferential review. However, the court did not grant summary judgment to Dr. Rogers. Instead, the court did something a bit unusual. It said that it requires more information to determine whether the denial was an abuse of discretion. “Specifically, the Court requires the plan administrator produce an amended final determination letter that includes specific reasons why each attending physician’s opinion is not well supported by medically accepted clinical or diagnostic standards or is inconsistent with other substantial evidence in the record. Accordingly, the letter must address the FMLA finding.” Until the court receives this letter, essentially an improved and corrected denial, each party’s motion for summary judgment was granted without prejudice. 

Second Circuit

Khesin v. Hartford Life & Accident Ins. Co., No. 22-1766, __ F. App’x __, 2024 WL 1404576 (2d Cir. Apr. 2, 2024) (Before Circuit Judges Jacobs, Parker, and Perez). Plaintiff-appellant Daniel Khesin became disabled in 2017 from a central nervous system autoimmune disorder called neuromyelitis optica. Mr. Khesin stopped working and applied for disability benefits and waiver of life insurance premium benefits. Hartford Life & Accident Insurance Company initially denied both claims for benefits, but ultimately reversed its denial decision for the long-term disability benefits. Hartford paid these benefits for two years. However, when the benefit eligibility test changed under the plan from “own occupation” to “any occupation,” Hartford terminated the benefits. This time, Mr. Khesin’s internal appeal was not successful. Accordingly, he filed this action seeking judicial review of Hartford’s denials of his long-term disability and life waiver of premium benefits. Under arbitrary and capricious review, the district court affirmed both denials and granted judgment in favor of Hartford. Mr. Khesin appealed. The Second Circuit issued this short unpublished order affirming the district court’s judgments. The court of appeals found no clear error with the district court’s conclusion that “Hartford considered Khesin’s non-exertional limitations.” The court highlighted that Hartford made its decision relying on seven consultants who reviewed the medical records, and noted that these reviewers “considered and discussed Khesin’s subjective complaints of pain, fatigue, or lack of concentration.” This was sufficient, the Second Circuit found. Next, the appeals court rejected Mr. Khesin’s application of its Demirovic standard to his waiver of premium claim. In Demirovic v. Building Service 32 B-J Pension Fund, 476 F.3d 208 (2d Cir. 2006), the Second Circuit formulated a new standard requiring disability benefit plans with the phrase “any gainful employment” to “show adequate consideration of a claimant’s vocational characteristics” and perform a vocational analysis. The Second Circuit was unwilling to expand Demirovic’s logic to waiver of life insurance premium benefits. “Here, the ‘any reasonable job’ language in the LWOP plan is not analogous to the ‘any gainful employment’ language in the disability-benefits plan in Demirovic. As the district court correctly concluded: ‘LWOP benefits, unlike LTD benefits, do not implicate ‘the most important purpose of ERISA,’ because they do not provide income insurance like LTD benefits.’” Concluding that life waiver of premium benefits fundamentally differ from long-term disability benefits, the Second Circuit found the district court did not err in ruling that Hartford was not required to obtain a vocational analysis. Finally, the court of appeals disagreed with Mr. Khesin that the district court erroneously relied on a number of post-hoc rationalizations. For these reasons, the Second Circuit was satisfied that the lower court appropriately applied arbitrary and capricious review to the administrative record and thus did not err in granting judgment in favor of defendant on both claims.

Fourth Circuit

Balkin v. Unum Life Ins. Co., No. GLS 21-1623, 2024 WL 1346789 (D. Md. Mar. 29, 2024) (Magistrate Judge Gina L. Simms). Plaintiff Kelly Balkin, an associate attorney at Hogan Lovells, US, LLP, filed this lawsuit under ERISA Section 502(a)(1)(B) to challenge defendant  Unum Life Insurance Company’s denial of her claim for long-term disability benefits. Ms. Balkin maintained that she is disabled from performing the physical and cognitive requirements of her profession because of her autoimmune symptoms caused by Crohn’s disease, fibromyalgia, and chronic fatigue syndrome. She averred Unum’s denial was “riddled with flaws” and shifting rationales and was the result of bias. Ms. Balkin and Unum each moved for judgment in their favor under Rule 56 review. In this decision the court ruled in favor of Unum and entered judgment in its favor. First, the court found that Unum had reserved its rights to later assert the pre-existing condition limitation as a denial basis. Second, although Ms. Balkin provided the court with statistical data about the bias of Unum’s reviewing doctors – including claimant disability benefit approval rates ranging from 0 to 4.5% – the court concluded that “statistics of denial rates alone [are] not probative” and found Ms. Balkin did not offer additional evidence to convince it that the bias “actually affected the decision to deny her benefits.” Further, the court agreed with Unum that Ms. Balkin’s self-reported pain levels did not match objective medical findings, especially as she did not appear to her own doctors to be in “acute distress.” Nor was the court persuaded that Unum needed to perform in-person exams on Ms. Balkin in order to assess her or that it needed to hire specialists in rheumatology or gastroenterology to review her files. All told, the court was convinced that Unum’s review was administered fairly and the result of a principled and deliberate process. Accordingly, the court concluded that substantial evidence supported the denial. It also held that Unum’s vocational assessment was appropriate, and properly considered Ms. Balkin’s brain fog. Finally, on the medical side of the review, the court found Unum reviewed and discussed all pertinent medical information. Thus, the court concluded “Unum did not abuse its discretion in finding that Plaintiff failed to demonstrate her disability under the Plan,” and so upheld the denial under deferential review. For these reasons, Ms. Balkin was unsuccessful in her motion for judgment to overturn the adverse benefit decision.

Eighth Circuit

Riggs v. Hartford Life & Accident Ins. Co., No. 4:22-cv-1017-DPM, 2024 WL 1346512 (E.D. Ark. Mar. 29, 2024) (Judge D.P. Marshall Jr.). For five years plaintiff Brenda Riggs received long-term disability benefits under her employer-sponsored disability plan. Notably, Ms. Riggs received continuous benefits during both the plan’s “own occupation” and the “any occupation” standards. Her pain and limitations related to her chronic cervical spinal conditions had not improved or changed in the summer of 2022 when Hartford Life & Accident Insurance Company and DXC Technology Services LLC terminated her benefits. Instead, what changed were the plan’s claim administrator and plan sponsor. The claim administrator Sedgwick was replaced with Hartford and the plan sponsor changed after Ms. Riggs’ employer, Hewlett Packard, merged with DXC Technology. In this action Ms. Riggs challenged Hartford and DXC’s decision to terminate benefits and moved for judgment on the administrative record. Her motion was granted, judgment was found in her favor, and defendants were ordered to reinstate Ms. Riggs’ benefits. As a preliminary matter, the court declined to resolve the parties’ dispute over the appropriate review standard. Concluding that Ms. Riggs was entitled to her benefits under either de novo or arbitrary and capricious review standard, it opted to review for an abuse of discretion. The court found one: “Ignoring relevant evidence is an abuse of discretion.” While Ms. Riggs was able to provide a tremendous amount of evidence to demonstrate the severity of her disability, including results of a functional capacity evaluation, the opinions of her treating medical providers, a vocational specialist report finding no jobs suitable for her, and the awards of disability benefits from both the Social Security Administration and the ERISA plan for the previous five years, defendants were unable to provide much convincing evidence to the contrary. In fact, one of the plan’s own reviewing doctors wrote that Ms. Riggs “has significant and verified degenerative disease with supporting imaging findings and the requirement for continual pain intervention.” This same doctor even determined that there was “no expectation at this point that the claimant’s condition will improve.” However, despite these findings, the reviewing doctor concluded that Ms. Riggs could return to sedentary work without restrictions. Given the imbalance between the strength of each party’s evidence, the court held that defendants failed to offer substantial evidence to support their decision and accordingly overruled the benefit denial. 

Wilkins v. Ascension Health Long-Term Disability Plan, No. 4:22-cv-00428-SEP, 2024 WL 1367050 (E.D. Mo. Mar. 31, 2024) (Judge Sarah E. Pitlyk). March 2020 was an uncertain time. A novel and mysterious coronavirus was spreading rapidly and people across the world were dying in large numbers. Plaintiff Kimberly Wilkins, a nurse employed at St. John’s Hospital in Warren, Michigan, was anxious and afraid. Her anxiety became so severe that on March 27, 2020, she stopped working and applied for disability benefits under her ERISA-governed plan. From March to September of 2020, Ms. Wilkins received short-term disability benefits while under the care and treatment of a team of psychologists. After her short-term disability benefits ran out, Ms. Wilkins attempted to return to work. She found she could not and applied for long-term disability benefits. Her claim was approved by Sedgwick, the claims administrator of the plan, which concluded that Ms. Wilkins could not safely perform the essential duties of her job “because of panic attacks, difficulty concentrating, limited focus, and impaired memory.” Ms. Wilkins continued to receive benefits up until February 15, 2021. At that time Sedgwick concluded that Ms. Wilkins no longer qualified for benefits as her medications were providing her with some relief and the “available medical information does not support clinical severity to preclude you from performing the essential duties of your own occupation as a Registered Nurse.” Ms. Wilkins commenced this litigation, following an unsuccessful administrative appeal, seeking to reinstate her long-term disability benefits. The parties each moved for summary judgment. The court in this order granted the Plan’s motion for judgment on Ms. Wilkins’ benefit claim, denied the Plan’s motion for judgment on its overpayment counterclaim, and denied Ms. Wilkins’ summary judgment motion in its entirety. To begin, the court found that abuse of discretion review applied because the claims administrator had discretionary authority to determine benefits eligibility. Under the “lenient standard” afforded by arbitrary and capricious review, the court found the decision to terminate benefits “reasonable and supported by substantial evidence,” and that “no procedural irregularities in the claim processing… suggest an abuse of discretion.” In particular, the court highlighted the fact that Sedgwick relied on “six independent medical-record reviews conducted by five doctors from a range of specialties that covered Plaintiff’s medical conditions,” and that all of the reviewing doctors “concluded Plaintiff was not disabled and could perform her duties as a registered nurse.” It also stressed that the Plan was not under any obligation to favor the opinions of Ms. Wilkins’ team of doctors over those of the reviewing doctors. It was also important to the court that the reviewing doctors did not ignore evidence of Ms. Wilkins’ disability and thoroughly explained points of disagreement. Based on these findings, the court granted summary judgment in favor of defendant on Ms. Wilkins’ claim for benefits. However, it held that genuine disputes of material fact pertaining to the status of Ms. Wilkins’ Social Security Administration award precluded summary judgment for the Plan on its counterclaim seeking alleged overpayment of benefits. Without specific information showing whether Ms. Wilkins kept her SSA award “separate from her general assets or dissipated the entire fund on nontraceable assets,” the court stated that it could not grant summary judgment on the counterclaim.

Lundberg v. UNUM Life Ins. Co. of Am., No. 22-cv-2188 (ECT/DLM), 2024 WL 1461433 (D. Minn. Apr. 4, 2024) (Judge Eric C. Tostrud). Plaintiff Bradley J. Lundberg sued Unum Life Insurance Company of America seeking a court order reinstating his terminated long-term disability benefits. Mr. Lundberg got just that in this decision from the court ruling on the parties’ cross-motions for judgment on the administrative record under de novo review. Mr. Lundberg had worked for Blue Cross and Blue Shield of Minnesota as a “senior recovery specialist.” He stopped working in 2018 due to “medically complex” symptoms from a neuro-ophthalmological disorder called anterior ischemic optic neuropathy (“AION”). Mr. Lundberg’s condition caused deteriorating ocular health, chronic headaches, disequilibrium problems resulting in falls (one of them major), and an array of vision problems including irregular eye movements and what one doctor described as functional blindness. Unum agreed that Mr. Lundberg’s symptoms prevented him from performing his sedentary work reading documents and using the computer. It approved his claim for benefits and paid them for more than three years. However, in 2021, Unum determined that Mr. Lundberg had improved and was no longer disabled. The court rejected Unum’s termination decision in this order, holding that “a preponderance of the evidence supports [Mr. Lundberg’s] benefits claim.” It stressed that the record was full of evidence that “Mr. Lundberg suffered from ongoing, functionality-impairing symptoms from AION when Unum terminated benefits.” Thus, the court held Unum failed to provide sufficient evidence to support its position that Mr. Lundberg’s condition improved so as to be non-disabling. To the contrary, it was clear to the court that the medical record established that Mr. Lundberg’s symptoms prevented him from reading for longer than five to ten minutes or using a computer for more than fifteen minutes. Based on the totality of the record, the court awarded judgment in favor of Mr. Lundberg and reinstated his benefits. The parties were directed to confer on an appropriate award of damages, including the amount of benefits due, the amount of prejudgment interest, and the amount of attorneys’ fees and costs.

Discovery

Eighth Circuit

Hahn v. Unum Life Ins. Co. of Am., No. 4:23-CV-750 RLW, 2024 WL 1463705 (E.D. Mo. Apr. 4, 2024) (Judge Ronnie L. White). While employed as a psychiatric nurse, plaintiff Tonya Hahn was assaulted by a patient. The injuries she sustained from the assault rendered her  disabled. In this action, Ms. Hahn seeks judicial review of Unum Life Insurance Company of America’s termination of her long-term disability benefits in February 2022. Ms. Hahn asserts claims for benefits and fiduciary breach. As part of this action, Ms. Hahn has moved for limited discovery, seeking written discovery on Unum’s internal claims handling practices and those of its medical reviewers, as well as four depositions, including the deposition of a Rule 30(b)(6) witness. Unum opposed the discovery motion. In the alternative, Unum argued that written discovery would be sufficient to the extent the court agreed Ms. Hahn’s discovery was warranted. Unum was unsuccessful in eliminating discovery altogether, but it did successfully persuade the court to limit the scope of discovery. The court allowed discovery into topics of Unum’s conflict of interest, its claims handling processes, and its compliance with ERISA regulations. The court did not allow for any extra-record discovery into whether Unum considered Ms. Hahn’s medical records. It also agreed with Unum that limiting discovery to written discovery seemed appropriate, and therefore denied, without prejudice, Ms. Hahn’s deposition requests. Finally, the court held that discovery pertaining to Ms. Hahn’s breach of fiduciary duty claim would be helpful and thus granted her discovery motion for interrogatories as related to the determination of whether Unum breached its fiduciary duties. Therefore, Ms. Hahn’s motion was granted in part and she is permitted to conduct limited discovery. To the extent the motion was denied, the denials were without prejudice. The court held that Ms. Hahn may file a renewed discovery motion to conduct depositions, after conducting written discovery, “on the basis that good cause for such depositions exists.”

ERISA Preemption

Second Circuit

De Wong v. Cheng, No. 23-CV-8666 (VSB), 2024 WL 1465356 (S.D.N.Y. Apr. 4, 2024) (Judge Vernon S. Broderick). Plaintiff Yuet Ngor Cheung De Wong filed a complaint in New York state court against her son’s former employer, Altice USA Inc., the insurer of his life insurance policy, The Lincoln National Life Insurance Company, and his girlfriend, Laurine Lu Cheng. Ms. Wong’s son, Aquilino Wong, died in March 2023. In her complaint, Ms. Wong alleges that she was wrongly removed as a beneficiary of Mr. Wong’s life insurance benefits because of undue influence by Ms. Cheng. Ms. Wong’s complaint included five causes of action including conversion, unjust enrichment, and breach of contract. Defendants removed the state lawsuit to federal court. Ms. Wong then voluntarily dismissed Lincoln. Defendant Altice moved to dismiss for failure to state a claim upon which relief can be granted. Rather than dismiss the action, the court remanded to state court. It concluded that because Ms. Wong was not a named beneficiary of the life insurance policy at the time of her son’s death, she lacked standing to bring a claim under ERISA Section 502. Accordingly, the court found that the state law claims were not completely preempted by ERISA, and that it lacked subject matter jurisdiction over the case. Finally, the court declined to exercise supplemental jurisdiction over the remaining state law claims, and instead chose to remand the action back to New York state court. The motion to dismiss was thus denied.

Ninth Circuit

Goel v. United Healthcare Servs., No. 2:23-cv-10071-HDV (SSCx), 2024 WL 1361800 (C.D. Cal. Mar. 29, 2024) (Judge Herman D. Vera). Dr. Sanjiv Goel M.D. provided emergency cardiovascular surgery to a patient insured by a self-funded ERISA-governed welfare plan administered by defendant United Healthcare Services, Inc. Dr. Goel was paid some amount for the services he provided, but was not paid an amount commensurate with what he believes is appropriate compensation for the surgery. In this action Dr. Goel seeks to address United’s underpayment. Dr. Goel filed his lawsuit in California state court and asserted causes of action under state law. United removed the case to federal court. Dr. Goel in response moved to remand back to state court. Meanwhile, Untied moved for dismissal of the action. The court’s analysis of both motions centered on ERISA preemption. Applying the two-part Davila test, the court concluded that (1) Dr. Goel could have pled an ERISA cause of action, and (2) Dr. Goel could not assert any independent legal duty outside of ERISA. Although Dr. Goel argued that his state law unfair business practices claim for violation of the Knox-Keene Act provided an independent legal duty, the court disagreed because United is a plan administrator and not a health care service plan, meaning it is not a party subject to the Knox-Keene Act. Finally, because the court determined that all of Dr. Goel’s state law causes of action are preempted by Section 514(a) of ERISA, it granted United’s motion to dismiss them. However, dismissal was without prejudice, and Dr. Goel may amend his complaint to plead claims under ERISA.

Medical Benefit Claims

Fourth Circuit

Faren v. ZeniMax Online Studios, LLC, No. EA-23-1270, 2024 WL 1374778 (D. Md. Mar. 29, 2024) (Magistrate Judge Erin Aslan). From 2018 to 2022 plaintiff Leona Faren worked as a media artist for defendant ZeniMax Online Studios, LLC. Her tenure at ZeniMax turned ugly after her supervisor outed her as transgender in January 2021. Over the next year, Ms. Faren faced daily harassment. She reported these issues to ZeniMax’s HR department. The situation resolved the following January, when ZeniMax offered Ms. Faren a severance agreement. Ms. Faren signed the severance agreement on May 13, 2022, terminating her employment at ZeniMax. The terms of the agreement provided Ms. Faren with 18 months of continuation coverage for her medical, dental, and vision benefits under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”). Problems with Ms. Faren’s COBRA benefits are the subject of this litigation. Essentially, Ms. Faren states that she elected continued converge and paid her premiums, but her insurance was cancelled and the situation was never remedied. Ms. Faren was ultimately left uninsured and saddled with out-of-pocket medical costs from medically necessary surgeries and prescription drugs. In this action Ms. Faren asserted causes of action under ERISA Section 510 for interference and retaliation, Section 404 for breach of fiduciary duty, and Section 601 for violations of COBRA. ZeniMax moved for dismissal for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). The court granted ZeniMax’s motion, without prejudice, in this order. First, the court agreed with ZeniMax that Ms. Faren could not state claims under Section 510 because the complaint lacked details that ZeniMax had a specific intent to interfere or retaliate. “Ms. Faren alleges that [defendants] failed to provide her with continuation coverage and retroactively canceled her insurance ‘to avoid bearing the cost of her medical expenses, and in particular, those procedures relating to her transition.’…These allegations, without more, are ‘nothing more than [Ms. Faren’s] own subjective speculation.” Turning to the fiduciary breach claim, the court held that Ms. Faren failed to plead “facts alleging the [ZeniMax] acted as a fiduciary within the meaning of ERISA, i.e., that [it] controlled or managed the plan or performed specified discretionary functions with respect to the plan. Furthermore, it is evident that Ms. Faren’s breach of fiduciary duty claim is little more than a repackaged claim for benefits that is not cognizable as pleaded in the Amended Complaint.” Regarding COBRA, the court wrote “denial of benefits…is not cognizable under the COBRA enforcement provisions.” Because defendants provided Ms. Faren with the required COBRA notice and timely responded to her information requests, the court found “no factual basis for imposition of penalties under Section 503(c)(1). Lastly, the court stressed that even if the amended complaint pled facts sufficient to allege plausible claims, the four counts would “nevertheless be dismissed because they fail to state plausible claims that are entitled to relief.” Once again, the court maintained that Ms. Faren was seeking relief probably remedied under Section 502(a)(1)(B), and not under the catchall provision 502(a)(3). For these reasons, the entirety of Ms. Faren’s complaint was dismissed.

Pension Benefit Claims

Third Circuit

Rajpurohit v. Becton, Dickinson, & Co., No. 22-cv-7612 (MEF)(CLW), 2024 WL 1477652 (D.N.J. Apr. 5, 2024) (Judge Michael E. Farbiarz). A former employee alleges in this action that he was wrongfully denied a payout from a 401(k) account maintained by his former employer. He has sued his former employer, the plan, the plan’s committee, and its agent alleging defendants breached their fiduciary duties to maintain records in accordance with ERISA and that they also breached their fiduciary duties by forging a document which purported to show that he had already been paid out on his account. In addition, plaintiff brought a Section 502(a)(1)(B) claim for benefits, and a 502(g) claim for attorneys’ fees. Defendants moved to dismiss. They argued that the claims were untimely under the relevant statutes of limitations. They also challenged the merits of the claims. The motion to dismiss was largely unsuccessful. First, the court rejected the untimeliness arguments. Accepting the allegations of the complaint, the court agreed with the plan participant that issues he had in 2011 with an unrelated pension plan did not mean that he had actual knowledge that this plan would have record-keeping issues as well or that his 401(k) account would go “entirely missing.” Furthermore, the court concluded that the “last act” was not some fiduciary breach that took place long ago, but rather “a broad, long-standing record-keeping breach – that switched from passive (the Plaintiff’s 401(k) account was lost) to active (when the Plaintiff was provided a ‘false’ document about his 401(k), to obscure that it had been lost.)” Thus, the court determined the last act happened when defendants provided plaintiff with the false document in 2021, making his complaint timely. Turning to the merits, the court began with the breach of fiduciary duty claim, and determined that the claim was plausible as alleged. However, the court dismissed the claim against the plan, as a plaintiff may not sue a retirement plan itself for a breach of fiduciary duty claim. The court also dismissed the claim as alleged against the former employer and the agent. It concluded that the complaint did not adequately allege facts to establish that either of these defendants were fiduciaries. Thus, plaintiff’s claim of fiduciary breach remained only against the committee – the entity granted full discretionary authority and charged with administering the plan. Next, the court analyzed the wrongful denial of benefits claim and determined that it too was sufficient to withstand a Rule 12(b)(6) challenge. However, much like the fiduciary breach claim, the court dismissed the Section 502(a)(1)(B) claim against certain defendants, namely the agent and the employer. It determined that there were no meaningful allegations as to the agent, and that the former employer was not the proper entity to sue for wrongful denial of benefits because it was not alleged to be the plan administrator. Finally, because plaintiff was left with both his breach of fiduciary duty and his benefit claim, the court declined to dismiss the attorneys’ fee claim as it “is too early to know who the prevailing party might be.” For these reasons, defendants’ motion to dismiss was granted in part and denied in part as detailed above.

Sixth Circuit

Clemons v. Norton Healthcare Inc., No. 3:08-cv-00069-RGJ, 2024 WL 1366833 (W.D. Ky. Mar. 29, 2024) (Judge Rebecca Grady Jennings). Since 2008, the plaintiff-retirees of Norton Healthcare, Inc. who participate in its cash balance retirement plan have been litigating the calculation of their pension benefits, which they believe were unpaid in violation of the terms of the plan and ERISA. At one point in time, the district court found for plaintiffs on liability. But that decision was undone by the Sixth Circuit in 2018, when it ruled that the plan’s language was “patently ambiguous” and that the ambiguity could not be resolved in favor of the plaintiffs through the use of contra proferentum given Firestone deference. Your ERISA Watch summarized the Sixth Circuit’s ruling as our notable decision on May 14, 2018. The district court’s findings of liability and damages award were vacated by the court of appeals decision, and many remaining legal and contractual issues were remanded for the district court to determine. The parties subsequently cross-moved for summary judgment. In this byzantine decision. the court granted in part and denied in part each party’s summary judgment motion. The court ruled in favor of defendants on all issues involving the calculation of the class members’ monthly retirement income, but ruled partially in favor of each party on issues related to whether the lump-sum benefits were the actuarial equivalent of the basic-form benefit and whether the actuarial assumptions used by Norton were valid. Regarding Norton’s calculation of the monthly retirement income and its position that the 2004 amendments to the plan didn’t eliminate the early retirement reducers for grandfathered benefits, the court wrote, “Applying Norton’s interpretation to the mechanics of the Plan is a frustrating exercise, but it has a reasonable basis. § 4.05(b), the definition of early retirement, and the cross-reference to 4.05(b)(5) in 4.02(b)(6) would be rendered meaningless otherwise. Thus, a reasonable factfinder could not find Norton’s interpretation of the Plan arbitrary and capricious, and the Court must defer to it. Summary judgment is Granted in favor of Norton on this issue.” However, Norton was not so successful when it came to issues of actuarial equivalence. The court found that the Plan and ERISA require lump sum benefits to be actuarially equivalent to the basic form of benefits. Under the terms of the Plan, the basic form benefit guarantees monthly benefit payments for sixty months (plus the remaining length of the retirees’ life beyond that initial 5-year guaranteed period.) However, the court found that the lump-sum payment did not consider the sixty-months certain feature. Thus, the court concluded, not “including the value of the sixty-months certain feature is a violation of ERISA and the Plan.” As a result, the court ordered “an upward adjustment of 1.5%” in calculating the actuarial equivalent lump-sum to ensure “retiring members get the value of the sixty-month-certain benefit.” Plaintiffs were accordingly granted summary judgment on this one issue. In all other respects, the court concluded that the calculations were compliant with ERISA’s actuarial equivalence requirements and summary judgment was accordingly granted to defendants on the remaining disputes over the calculation formula. Thus, at the end of the 16-year delay, the retirees were largely unsuccessful in their challenge, while Norton, thanks to judicial deference, was mostly able to preserve its interpretation of the convoluted plan language.

Pleading Issues & Procedure

Second Circuit

Farah v. Emirates, No. 21-CV-05786-LTS, 2024 WL 1374778 (S.D.N.Y. Mar. 31, 2024) (Judge Laura Taylor Swain). In the spring of 2020, during the height of the COVID-19 lockdowns, many airlines furloughed their employees. In April 2020, Emirates Airlines furloughed much of its workforce, including named plaintiffs Kayenat Farah, Joseph Cammarata, Charlotte Armstrong, and Violet Simpson. Then, in the summer of 2020, these same workers were laid off, their employment permanently terminated. Following their terminations, plaintiffs submitted claims for benefits under the Emirates Severance Plan. Their claims were denied. Plaintiffs believe that they were discriminated against and treated differently from Emirates’ non-American employees and former employees. On behalf of themselves and similarly situated individuals, plaintiffs have sued Emirates Airlines and the Severance Plan, asserting claims under ERISA, New York’s WARN Act, Title VII, and New York’s Human Rights Law. Defendants moved to dismiss and moved to strike plaintiffs’ jury demand. Their motions were entirely denied by the court in this decision. To begin, the court analyzed the sufficiency of plaintiffs’ three ERISA claims: (1) a claim to recover benefits; (2) a claim for breach of fiduciary duties of prudence and loyalty; and (3) a claim for violating statutory filing requirements and failing to furnish information to plan participants upon written request. First, drawing inferences in favor of plaintiffs “and accounting for the limited information available to them without the benefit of discovery,” the court concluded that “the allegations could support an inference that the Severance Plan was an ERISA-governed plan. Therefore, the Court finds that Plaintiffs have adequately pled claims for relief under ERISA for denial of benefits, breach of fiduciary duty, and failure to furnish plan information upon written request. Defendants’ motion to dismiss counts 1-3 of the Amended Complaint is accordingly, denied.”  The decision went on to examine the state and federal discrimination claims, and found that they also satisfied Rule 8 pleading. Finally, the court denied as premature the motion to strike the jury demand, concluding that Emirates failed to establish a prima facie case for immunity as it is not itself owned by a foreign state but is instead owned by an intermediary corporation “which is, in turn, controlled by the Government of Dubai.”

Boyette v. Montefiore Med. Ctr., No. 22-cv-5280 (JGK), 2024 WL 1484115 (S.D.N.Y. Apr. 5, 2024) (Judge John G. Koeltl). Plaintiffs Sheila A. Boyette and Tiffany Jiminez brought this putative class action against the Montefiore Medical Center, the Board of Trustees of Montefiore, the TDA Plan Committee, and individual fiduciary defendants for violating their duty of prudence by failing to leverage the plan’s great size to obtain lower costs and reduce recordkeeping and administrative expenses to participants. Plaintiffs’ complaint was previously dismissed by the court. Your ERISA Watch summarized the court’s dismissal without prejudice in our November 22, 2023 newsletter. In response, plaintiffs moved pursuant to Federal Rule of Civil Procedure 15(a)(2) for leave to file a Third Amended Complaint. The court denied the motion for leave to amend in this decision. Broadly, the court concluded that granting leave to amend “would be futile because substantively the same defects present in the Second Amended Complaint continue to exist in the proposed Third Amended Complaint, except for the Court’s conclusion that both plaintiffs lack standing…In any event, because the Third Amended Complaint fails to assert a claim for relief that is plausible on its face… the plaintiffs’ Third Amended Complaint fails on the merits.” Much like the court’s analysis of plaintiffs’ earlier pleadings, the court was not satisfied with the proposed amended complaint’s lack of specificity detailing what services were provided by the comparator plans versus those provided by the Montefiore Plan’s recordkeepers. As it felt that all of the same substantive problems remained in the amended pleading, the court rejected the proposed amended complaint and denied plaintiffs’ motion.

Third Circuit

Burns v. Cooper, No. 23-5086, 2024 WL 1385935 (E.D. Pa. Apr. 1, 2024) (Judge Juan R. Sanchez). In 2019, plaintiff Jamiylah Burns obtained a $75,000 judgment against her ex-husband, defendant Blakely Cooper, in a state court defamation action. Although the judgment was upheld on appeal, Mr. Cooper has not paid. He claims he is unable to do so. Ms. Burns believes Mr. Cooper is using his ERISA-governed 401(k) plans as a way to shield his money from the judgment he owes her. “Burns contends Cooper has ‘repeatedly fluctuated his 401(k) contributions’ to both his Merck plan and his 401(k) plan with is former employer, Pfizer, Inc., ‘for the purpose of evading payment of the money owed to her.’” As a result, Ms. Burns initiated execution proceedings in Montgomery County Court and served writs of execution upon Merck, Sharp & Dohme LLC, and Pfizer pursuant to Pennsylvania law. Garnishee Merck moved to dismiss and quash the writ of execution Ms. Burns filed. The court granted its motion finding the funds exempt from garnishment and execution under ERISA’s anti-alienation provision. It held that Ms. Burns’ case did not fall under any one of the “very few exceptions” to 29 U.S.C. § 1056(d), stressing that “the Supreme Court has made clear that approval of any generalized equitable exceptions to the anti-alienation provision are not appropriate.” Moreover, the court found Ms. Burns’ state law claims were preempted under Section 514 as they obviously relate to an employee benefit plan. Thus, finding no grounds to disregard the anti-alienation provision, the court concluded that Mr. Cooper’s 401(k) funds were exempt from execution and therefore granted the motion to dismiss and quash the writs of execution.

Fourth Circuit

Gasper v. EIDP, Inc., No. 3:23-CV-00512-FDW-SCR, 2024 WL 1446594 (W.D.N.C. Apr. 3, 2024) (Judge Frank D. Whitney). Plaintiff David Gasper sued E.I. DuPont de Nemours and Company, Corteva, Inc., the Pension and Retirement Plan, and the Benefits Plans Administrative Committee under ERISA after his claim for pension benefits was denied. Mr. Gasper’s action hinges on the effect of a 2013 family court domestic relations order on Mr. Gasper’s pension benefits. In his complaint, Mr. Gasper asserted claims under ERISA Sections 502(a)(1)(B), (a)(3), 104(b)(4), and 502(g). Defendants moved for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) on Mr. Gasper’s second cause of action, asserted under Section 502(a)(3). They argued that Mr. Gasper has an appropriate remedy available under Section 502(a)(1)(B) which makes his equitable relief claim under Section 502(a)(3) improper. The court agreed and granted the motion. “Plaintiff’s second claim for relief simply repackages the same argument for a single injury. Plaintiff alleges no additional facts or injury other than the wrongful denial of benefits, and Plaintiff’s requested relief under ERISA § 502(a)(3) ‘would all serve the ultimate purpose of allowing plaintiff… to recover wrongfully denied benefits.’” Accordingly, the court held that the relief Mr. Gasper sought under Section 502(a)(3) did not qualify as equitable relief and was instead nothing more than a claim for benefits in disguise, duplicative of his Section 502(a)(1)(B) claim. His second cause of action was therefore dismissed as defendants requested.

Seventh Circuit

Hensiek v. Board of Dirs. of Casino Queen Holding Co., No. 3:20-cv-377-DWD, 2024 WL 1345641 (S.D. Ill. Mar. 29, 2024) (Judge David W. Dugan). Everyone is trying to deflect responsibility in this casino stock ESOP class action. The selling shareholder defendants and the fiduciary defendants are each trying to pass the buck to the other by asserting, among other things, claims of indemnity, negligent misrepresentation, and contribution. And, as pertinent here, they have also each moved to dismiss the other third-party complaints asserted against them. In short, none of the defendants wants to be left holding the hot potato when the music finally stops and judgment comes down. After all, as Your ERISA Watch has reported in our previous coverage of this case, plaintiffs’ allegations of wrongdoing here are particularly egregious (including a 17.5% interest rate of the ESOP’s debt to the holding company and the 15-year payment plan of the $210 million real estate transaction for property valued at $12.1 million). However, the court was having none of it, as it made clear in this decision denying the motions to dismiss. This case necessarily presents fact-intensive issues that need to be proved and resolved after discovery, the court held. Who knew what when, who was motivated by what, and who is ultimately responsible and liable for the alleged harm, are all questions with answers that will just have to wait. The same was true for the statute of limitations and ERISA preemption questions. So too for damages, which the court again stressed is a topic that is not appropriately addressed at this stage of litigation. Accordingly, the court denied the motions to dismiss the third-party complaints, concluding the allegations satisfied pleading requirements. Like the defendants, Your ERISA Watch readers will also just have to wait to see what happens next. After all, litigation, much like Casino Queen’s riverboat activities, is always a gamble. But at least when it comes to ERISA, the house does not always win.

Ninth Circuit

Furst v. Mayne, No. CV-20-01651-PHX-DLR, 2024 WL 1366884 (D. Ariz. Mar. 31, 2024) (Judge Douglas L. Rayes). On March 3, 2023, the court granted the plaintiff’s motion for leave to amend his breach of fiduciary duty action under ERISA to add a common law breach of fiduciary duty claim, pled in the alternative, in the event the plan at issue was found not to be governed by ERISA. The time for filing the amended pleading came and went. Plaintiff missed the 14-day deadline. Then, during a telephonic conference with the court on May 25, 2023, the plaintiff realized his error and later that day filed the amended complaint, asking the court to retroactively extend the deadline to accept the amended complaint as timely. In this decision the court denied the motion for retroactive extension and granted defendants’ motion to strike the tardy amended complaint, leaving the original complaint operative. Plaintiff did not provide any compelling reason for missing the deadline. The court stated that Ninth Circuit and Supreme Court precedent agree that “inadvertence, ignorance of the rules, or mistakes construing the rules” of unambiguous civil procedures and deadlines does not constitute “excusable neglect.” While the court acknowledged that plaintiff’s mistake was not the product of bad faith, it nevertheless concluded that defendants would be prejudiced by accepting the amended complaint. “Plaintiff filed his amended complaint 69 days late…To permit Plaintiff to inject a new claim with requests for relief into the case now would necessitate reopening discovery and probably a second round of dispositive motions. Thus, in addition to being unjustified, Plaintiff’s delay in filing his amended complaint would prejudice Defendants, upend the case management schedule, and protract this litigation.” On the other hand, the court found that plaintiff would not be prejudiced by denying his motion. It made clear that because the parties agree ERISA governs the plan, the common law claim pled in the alternative would be preempted, rendering it unnecessary. In sum, the court did not find this to be a “situation in which the Court should excuse a party’s neglect to avoid an injustice.”

Provider Claims

Ninth Circuit

FHMC LLC v. Blue Cross & Blue Shield of Ariz., No. CV-23-00876-PHX-GMS, 2024 WL 1461989 (D. Ariz. Apr. 3, 2024) (Judge G. Murray Snow). Emergency healthcare provider plaintiff FHMC, LLC sued Blue Cross and Blue Shield of Arizona, Inc. under state law and three federal statues – the Patient Protection and Affordable Care Act of 2010 (“ACA”), the No Surprises Act, and ERISA – to challenge Blue Cross’ alleged systemic underpayment of medical bills. Blue Cross moved to dismiss the complaint for failure to state a claim. Its motion was granted in this order. The court held neither that the ACA nor the No Surprises Act provide a private right of action for healthcare provider to sue an insurance company for underpayment of benefits. The court also determined that FHMC did not sufficiently state claims under ERISA, as it failed to identify the existence of specific ERISA plans or point to provisions within ERISA plans entitling them to benefits. Rather, FHMC pled only that their claims “may involve insurance plans under” ERISA. Accordingly, the court dismissed all of the federal claims. The state law claims were also dismissed, as the court declined to exercise supplemental jurisdiction over them. Dismissal of FHMC’s complaint was without prejudice.

Statute of Limitations

Second Circuit

Knight v. Int’l Bus. Machs. Corp., No. 22-CV-4592 (NSR), 2024 WL 1466817 (S.D.N.Y. Apr. 4, 2024) (Judge Nelson S. Roman). A putative class of participants of the International Business Machines Corporation (“IBM”) Personal Pension Plan brought this action pursuant to ERISA Sections 502(a)(2) and 502(a)(3) for violations of ERISA’s anti-forfeiture, actuarial equivalence, and joint and survivor annuity requirements against IBM, the Plan, and the Plan Administrator Committee. Defendants moved to dismiss, arguing all of plaintiffs’ claims were barred by the relevant statutes of limitation. The court agreed and granted the motion to dismiss with prejudice. To begin, the court held that the plan’s contractual two-year limitation was enforceable. It stated that the Plan’s limitation period began to run when plaintiffs were provided with Pension Projection Statements which expressly explained that the joint and survivor annuity calculations used the Unisex Pension 1984 mortality tables. “In other words, the Pension Projection Statements disclosed to Plaintiffs the material facts of their statutory claims,” meaning the claims began to accrue on the date when plaintiffs received the statements. As all of the plaintiffs received their statements more than two years before the action was filed, the court dismissed plaintiffs’ statutory claims as untimely. The same was true of plaintiffs’ breach of fiduciary duty claim. There, the court found that plaintiffs had “actual knowledge” of the alleged fiduciary breach when they were informed about the mortality actuarial assumptions in the statements. “Accordingly, because the Plaintiffs had actual knowledge of the facts underlying their claims more than three years prior to the filing of the June 2, 2022 complaint, Plaintiffs’ claims for breach of fiduciary duty are dismissed.”

Guenther v. BP Retirement Accumulation Plan, No. 4:16-CV-995, 2024 WL 1342746 (S.D. Tex. Mar. 28, 2024) (Judge George C. Hanks, Jr.)

As expected, we received a deluge of cases this week as the Civil Justice Reform Act reporting period drew to a close. With so many interesting decisions it was difficult to choose just one to highlight, but the findings of fact and conclusions of law from this long-running class action in Houston against the North American subsidiary of oil giant British Petroleum stood out. All employers who are considering changing their retirement plans should read this decision for valuable lessons on what not to do.

The plaintiffs are retired employees of BP America, Inc. who used to work for Standard Oil of Ohio (“Sohio”). BP acquired Sohio in 1987 and merged its retirement plan with BP’s plan. The combined BP plan calculated benefits under a “final average pay formula” and had an early retirement option. Under this plan, BP was required to purchase an annuity for retiring employees that paid a specific sum, regardless of interest rate changes.

In 1989, however, BP changed the plan. The new plan replaced the final average pay formula with a “cash balance” benefit formula. Extensive documentary evidence showed that BP initiated the change in order to reduce costs, and that it was aware the new plan would reduce benefits for a significant number of people. Under the new plan, interest rate fluctuations were a risk that was shifted to employees because BP did not have to buy employees annuities. Instead, employees received whatever sum was in their account, which was vulnerable to falling interest rates.

BP organized a promotional campaign to explain the new plan to its employees. Among its letters and brochures were statements that the old plan was “extremely complicated, and difficult to understand,” and the new plan was “much simplified.” BP represented that it – “not you – bears all the risk associated with investments in the Plan,” and “[t]he Plan is designed to provide a retirement benefit that is comparable to – and, in most cases, better than – the benefit you would have received under the prior pension formula.” BP informed employees that their opening account balance would include the early retirement benefit, but did not explain that it had been removed entirely from the new plan.

When BP acquired ARCO and Amoco, transitioning employees from those companies received an “enhancement” upon joining the plan based on BP’s acknowledgment that the plan was potentially less generous than the employees’ old plans. Heritage Sohio employees like the plaintiffs began wondering why they did not receive a similar enhancement, and lodged a complaint. BP referred the complaint to an independent ombudsman, Stanley Sporkin, a retired federal judge and former director of enforcement for the SEC.

Sporkin ultimately recommended that BP pay additional benefits to legacy Sohio employees, stating that “[t]he relevant facts of this matter are not in serious dispute.” BP’s statement that the new plan would provide “a retirement benefit that is comparable to – and in most cases, better than” the old plan was incorrect “because the interest rate environment did not meet the hoped-for expectations… The employees simply were not told that the risks associated with a decline in interest rates would be solely borne by the employees.”

BP did not implement these recommendations. Instead, it sparred with Sporkin’s office over his findings and how to communicate them to employees. Eventually, in September of 2014, BP issued a statement to affected employees in which it expressed regret that “market conditions yielded an unexpected outcome for you,” but did not inform them that Sporkin’s investigation “identified a potential discrepancy between the 1989 promise and actual retirement benefits.” Sporkin responded with his own letter in which he set forth his findings, including the discrepancy.

Plaintiffs filed this action in 2016 and it has been pending ever since. During that time it has been up to the Fifth Circuit and back (on the issue of whether plaintiffs in another case should have been able to intervene in this one). Finally, after a fourteen-day bench trial, the court issued this decision, in which it found in plaintiffs’ favor in all respects.

The court was highly critical of BP, ruling that it failed to comply with ERISA’s requirements that it (a) disclose its plan changes to participants in a manner calculated to be understood by the average plan participant, (b) notify participants of material modifications to the plan, and (c) provide notice of a significant reduction in benefits.

The court further ruled that BP violated its fiduciary duties under ERISA because “1) BP promoted only the positive aspects of the plan change to employees for the purpose of retaining the employees, 2) BP made promises to employees about comparative plan performance without warning employees about circumstances that would cause the promise to fail; 3) BP did not share with employees that BP realized benefits from the conversion other than immediate cost savings; 4) BP did not share with employees that the converted plan introduced risk to the employees they had not previously borne; and 5) BP did not explain it had removed the early retirement benefit, and what that meant to employees as they reached age 55.”

Furthermore, the court found that BP continued to mislead employees even after they became suspicious. BP “concealed all along it had no intent to fulfill its promise by enhancing the class members’ benefits to be as good or better than what the class would have received” under the old plan. BP “encouraged class members to engage in the Ombudsman process and await its outcome,” and implied that it would follow the ombudsman’s recommendation. However, “BP never intended to follow the Ombudsman’s recommendation if the Ombudsman found, as he did, that the employees’ benefits should be enhanced to fulfill BP’s promise.”

The court also addressed BP’s defenses. BP argued that plaintiffs did not exhaust their administrative remedies, but the court ruled that fiduciary breach claims do not require exhaustion, and in any event BP’s rejection of the ombudsman’s report demonstrated that any such exhaustion would have been futile. BP also argued that some of the plaintiffs had released or waived their rights, but the court ruled that there was no evidence that the plaintiffs had intentionally relinquished their right to bring a suit for breach of fiduciary duty, and in any event such releases would violate ERISA’s anti-alienation provision.

The court also rejected BP’s statute of limitations defense, finding that plaintiffs were not fully aware of their rights until the ombudsman’s report in 2014, and thus their 2016 suit was timely. The court further ruled that the claims certified in this case were dissimilar from those certified in another case against BP in the Northern District of Illinois that concluded in 2002, and thus any claims disposed of by that case did not affect this one. Finally, the court ruled that it was appropriate to impose liability on the current plan sponsor (BP Corporation North America), even though the breach was committed by the prior plan sponsor (BP America, Inc.).

In the end, the court decisively ruled that plaintiffs were entitled to equitable relief under 29 U.S.C. § 1132(a)(3) because of BP’s numerous procedural and fiduciary failures. It ordered the parties to “file supplemental briefs regarding the appropriate form of that equitable relief.”

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

Attorneys’ Fees

Ninth Circuit

Protingent, Inc. v. Gustafson-Feis, No. 2:20-CV-1551-KKE, 2024 WL 1282839 (W.D. Wash. Mar. 26, 2024) (Judge Kymberly K. Evanson). Defendant Lisa Gustafson-Feis was injured in a motor vehicle accident in 2016. She had health insurance through an ERISA-governed medical benefit plan sponsored by plaintiff Protingent, Inc., which paid for her treatment. Gustafson-Feis filed a personal injury suit, and Protingent placed a lien on it. The case eventually settled for $150,000, but Gustafson-Feis refused to reimburse Protingent, whose lien totaled $73,326.54. Protingent filed this action against Gustafson-Feis, and as we reported in our January 24, 2024 edition, it was successful on summary judgment. Protingent then filed a motion for attorney’s fees, which was decided in this order. The court ruled that Protingent was entitled to fees under the terms of the plan, which had a fee-shifting provision, and also under ERISA’s remedial scheme, 29 U.S.C. § 1132(g). The court acknowledged that Gustafson-Feis had suffered a “catastrophic financial loss” as a result of her accident, but ruled that the balance of factors weighed in favor of awarding fees to Protingent. This was because “Gustafson-Feis did not act in good faith in pursuing a litigation position not supported by facts or law, an award of fees would deter others from frivolous challenges to subrogation rights under ERISA plans, and Protingent’s position was well-supported under the relevant legal authorities.” The court threw Gustafson-Feis a small bone, however, and declined to award prejudgment interest. In the end, the court approved voluntarily reduced hourly rates of $210, $295, and $345 for Protingent’s attorneys, and awarded Protingent the full amount it requested, $66,676. As a result, a financially strapped Gustafson-Feis now owes Protingent almost $140,000, with post-judgment interest only accumulating.

Breach of Fiduciary Duty

Second Circuit

Bloom v. AllianceBernstein L.P., No. 22-CV-10576 (LJL), 2024 WL 1255708 (S.D.N.Y. Mar. 25, 2024) (Judge Lewis J. Liman). The plaintiffs are participants in defendant AllianceBernstein’s 401(k) profit sharing plan. They brought this putative class action against AllianceBernstein, an investment firm, and related defendants responsible for overseeing the plan, alleging that defendants breached their fiduciary duties and should be compelled to disgorge profits and restore losses to the plan. Defendants filed a motion to dismiss. The court addressed the duty of loyalty first. Plaintiffs contended that defendants breached this duty by including AllianceBernstein’s proprietary investment products in the plan. The court disagreed: “Accepting Plaintiffs’ theory would require the Court to create an inference of disloyalty whenever an employee retirement plan offered proprietary investment options, an approach that has been rejected on numerous occasions.” The court ruled that plaintiffs were required to “allege specific facts” showing that defendants were disloyal, which they had not done. Next, the court addressed the duty of prudence. Plaintiffs contended that “the Court can plausibly infer, based upon the underperformance of certain Plan investment options as compared to alternative, better-performing investments, that the process for selecting and monitoring the menu of investment options available in the Plan was flawed[.]” However, plaintiffs did not cite any “direct evidence regarding the investment evaluation process employed by Defendants” and the court ruled that plaintiffs’ comparators were insufficient because their results differed only slightly from those of the AllianceBernstein plan: “the alleged underperformance is not of sufficient duration or magnitude to create an inference of misconduct.” Next, because plaintiffs could not maintain their duty of loyalty and duty of prudence claims, the court also dismissed their derivative duty to monitor and co-fiduciary duty claims. Finally, the court addressed plaintiffs’ prohibited transaction claim. Defendants contended that to the extent this claim was based on the plan’s selection of AllianceBernstein’s proprietary funds in 2014-15, it was untimely under ERISA’s six-year statute of limitations. The court agreed. The court further ruled that to the extent plaintiffs’ claims were based on the plan’s retention of those funds they failed to state a claim. The court ruled that retaining funds is not a “transaction” for ERISA’s purposes and in any event plaintiffs had not alleged that the plan received unreasonable compensation. Plaintiffs’ final argument, that the fees charged by the proprietary funds constituted a prohibited transaction, also failed. The only fees charged were insurance fees, which went to insurance providers and not to any fiduciaries. The court thus granted defendants’ motion in its entirety and dismissed plaintiffs’ complaint, albeit without prejudice.

Eleventh Circuit

Su v. CSX Transp., No. 3:22-cv-849-MMH-JBT, 2024 WL 1298825 (M.D. Fla. Mar. 27, 2024) (Judge Marcia Morales Howard). Acting Secretary of Labor Julie A. Su brings this action against the fiduciaries of the CSX Corporation Master Pension Trust for prohibited transactions and breaches of their duties. As the court summarized, “Plaintiff alleges that (1) CSX has absolute authority to appoint committee members, (2) those committee members did not review the reasonableness of CSX’s fees despite their obligation to do so, and instead of appointing new committee members, (3) CSX ‘streamlined its fees calculations to the detriment of the Plans,’” meaning “CSX did not simply charge for its services or appoint members of the committees, but ‘caused the Master Pension Trust to pay itself Service Fees without any oversight.’” In this decision, the court accepted these allegations as true, denied defendants’ motion to dismiss the second amended complaint, overruled defendants’ objections to the October 11, 2023 Report and Recommendation of the Magistrate, and adopted in full the Magistrate’s report as the opinion of the court. And although the court noted that plaintiff’s pleading lacked certain precise details of all of the relevant facts, it nevertheless stated that defendants clearly did not have difficulty understanding the allegations. To the contrary, “the arguments presented by Defendants in the Motion show they have had no difficulty identifying the claims Plaintiff seeks to pursue or the factual basis of those claims.” As a result, the Secretary’s action survived defendants’ pleading challenge and will thus continue forward.

Class Actions

Fourth Circuit

Paul v. Blue Cross Blue Shield of N.C., No. 5:23-CV-354-FL, 2024 WL 1286208 (E.D.N.C. Mar. 26, 2024) (Judge Louise W. Flanagan). Plaintiffs Doug Paul and Alexander Beko, on behalf of themselves and a putative class of similarly situated individuals, are challenging defendant Blue Cross Blue Shield of North Carolina’s practice of denying claims for proton beam radiation therapy for the treatment of prostate cancer. According to the complaint, Blue Cross’ “corporate medical policies” categorically consider proton beam radiation therapy investigational for the treatment of prostate cancer. In their lawsuit plaintiffs allege causes of action under ERISA under Sections 502(a)(1)(B), (a)(3), and (g), as well as claims under North Carolina state law. Defendant moved for dismissal and to strike pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(6), 12(b)(7), and 12(f). Blue Cross sought dismissal of Mr. Beko’s claims “for failure to join the state plan, an assertedly necessary and indispensable party under Federal Rule of Civil Procedure 19, and for failure to state a claim upon which relief may be granted with respect to his UDTPA (North Carolina Unfair and Deceptive Trade Practices Act) claim.” Blue Cross also sought to dismiss Mr. Paul’s ERISA Section 502(a)(3) claims as duplicative of his claims asserted under Section 502(a)(1)(B). Additionally, Blue Cross moved to strike the class claims, arguing that class-wide resolution of the individual medical claims could not be maintained. Finally, Blue Cross sought, in the alterative, to dismiss “any putative class members whose claims are time-barred and who were encompassed within the proposed class” in a related action. Blue Cross’ motion was denied in its entirety in this decision. First, the court agreed that the state plan was a necessary party, but held that “joinder is feasible where North Carolina’s waiver of sovereign immunity with respect to contracts may allow it to participate in this litigation.” Next, the court analyzed the UDTPA claim and concluded that Mr. Beko “stated facts sufficient to draw plausible inference that defendant’s actions were the proximate cause of his injury.” Getting to ERISA matters, the court cited Fourth Circuit precedent holding that “alternative pleading [is] permissible in the ERISA context.” As a result, the court declined to dismiss Mr. Paul’s Section 502(a)(3) claims as duplicative of the relief available under 502(a)(1)(B). Finally, the court disagreed with Blue Cross that it was clear from the face of the complaint that plaintiffs could not meet the requirements of class certification under Rule 23 and therefore denied its motion to strike the class claims. With regard to the commonality requirement of Rule 23(a), the court wrote, “Plaintiffs allege in essence that defendant ignored the nuances of each member’s medical situation, applying instead a standardized coverage policy.” Such behavior, according to the court, may be appropriately resolved on a class-wide basis, and accepting the allegations as true for the purposes of this decision, the court held that they establish commonality between the putative class members. Nor was it clear to the court that there is a conflict of interest between the named plaintiffs and potential class members on the face of the complaint. Finally, defendant’s assertion that certification of a class would be impossible under Rules 23(b)(1) or (b)(2) was also rejected by the court. The court stated that “no portions of the complaint show plaintiffs will fail to meet these requirements and (Blue Cross’s) predictions regarding the risk of inconsistent adjudication of the consistency of its own conduct are premature in the absence of class certification discovery.” Thus, Blue Cross’s motions to dismiss and strike were denied in their entirety and plaintiffs’ action will proceed. (Plaintiffs are represented by Kantor & Kantor partner Tim Rozelle and Elizabeth K. Green of Green Health Law.)

Sixth Circuit

Sweeney v. Nationwide Mut. Ins. Co., No. 2:20-cv-1569, 2024 WL 1340262 (S.D. Ohio Mar. 28, 2024) (Judge Sarah D. Morrison). A putative class of former employees of Nationwide Mutual Insurance Company and participants in its 401(k) savings plan moved for certification in their collective ERISA action brought against Nationwide and the other plan fiduciaries. In their action, named plaintiffs Ryan Sweeney and Bryan Marshall allege that The Guaranteed Fund, the challenged plan investment, “pits Nationwide’s economic interests against Participants’ – in violation of ERISA’s provisions on fiduciary duties, prohibited transactions, and private inurement, and to Participants’ financial detriment.” Plaintiffs challenge the annuity contract supporting The Guaranteed Fund, as well as the crediting rate established and determined by Nationwide. Plaintiffs sought to certify a class of all “participants and beneficiaries in the Nationwide Savings Plan who were invested in the Guaranteed Fund at any time from March 26, 2014 through the date of final judgment in this action, excluding the individual Defendants.” In this order the court granted plaintiffs’ motion and certified their class. Applying the criteria of Federal Rule of Civil Procedure 23(a), the court found that: (1) the proposed class of more than 50,000 current and former plan participants was “sufficiently numerous to make joinder impracticable”; (2) common issues regarding defendants’ behavior unites the class members; (3) the named plaintiffs were typical of the others in the class and their “claims arise from the same events, course of conduct, and legal theories as the class claims”; and (4) the named plaintiffs were adequate representatives seeking appropriate class-wide relief and recovery on behalf of the plan. The court found “unavailing” defendants’ arguments regarding the named plaintiffs releasing their claims, lacking knowledge of the claims, having conflicting interests with the putative class, and failing to exhaust administrative remedies. The court found that the named plaintiffs had a stake in the outcome of the case, they understand the claims adequately for laypeople, and there is no insurmountable conflict between them and the other plan participants. With regard to exhaustion, the court stated that Sixth Circuit precedent in Hitchcock v. Cumberland Univ. 403(b) DC Plan, 851 F.3d 552 (6th Cir. 2017), establishes that participants and beneficiaries in ERISA actions “do not need to exhaust internal remedial procedures before proceeding to federal court when they assert statutory violations of ERISA.” Under its Rule 23(b)(1)(B) analysis, the court concluded that “because Named Plaintiffs seek recovery on behalf of the Plan, a decision in this case would practically affect the interests of others whether or not a class is certified.” In fact, were a class not to be certified, the court stated that there would be a risk that future plaintiffs would be left “without relief and without representation.” It therefore concluded that certification under Rule 23(b)(1)(B) was entirely appropriate for this kind of ERISA action under the circumstances presented in this lawsuit. Thus, the court held that the proposed class met the requirements of Rule 23 and certified the proposed group of participants.

Disability Benefit Claims

Second Circuit

Fichtl v. First Unum Life Ins. Co., No. 1:22-cv-06932 (JLR), 2024 WL 1300268 (S.D.N.Y. Mar. 26, 2024) (Judge Jenifer L. Rochon). Plaintiff Richard Fichtl was a longtime employee of New York Presbyterian Hospital and is a participant in its ERISA-governed benefit plans, including its long-term disability and life insurance plans, the subjects of this litigation. In December 2017, Mr. Fichtl filed a claim for short-term disability benefits in anticipation of an upcoming surgical procedure, a laparoscopic colectomy, to treat a colon disease called sigmoid diverticulitis. Following the surgery, Mr. Fichtl’s health only deteriorated, both physically and cognitively. He subsequently applied for long-term disability benefits. In the months and years that followed his procedure Mr. Fichtl would complain of depression, memory, and concentration issues, stomach and abdominal pain, post-operative incision issues, low energy levels, kidney disease, and diabetes. Defendant First Unum Life Insurance Company approved Mr. Fichtl’s claim for long-term disability benefits, but only for 24 months pursuant to the plan’s limitation for benefits caused from debilitating depression. However, even before the 24 months were up, on March 3, 2020, Unum concluded that Mr. Fichtl was no longer totally disabled and terminated his long-term disability and waiver of life insurance premium benefits. Ruling on the parties’ cross-motions for judgment on the administrative record under de novo review, the court granted Mr. Fichtl’s motion and denied Unum’s motion. The court agreed with Mr. Fichtl that his ability to “engage in normal life activities” on an occasional basis doesn’t equate to the ability to work full time in his demanding role as the hospital’s Director of Pharmacy. As the court put it succinctly, “[t]he core issue in this case is whether Plaintiff is ‘limited from performing the material and substantial duties of [his] regular occupation due to [his] sickness or injury.” It answered that question in the affirmative. “In deciding this issue, the Court finds that the medical opinions of Plaintiff’s treating physicians…are more probative of Plaintiff’s health and capabilities than the medical opinions of Defendant’s in-house file reviewers,” and stated, “Defendant offers no sound reason for the Court to doubt the capabilities, credibility, or integrity of any of Plaintiff’s treating physicians.” Moreover, the court determined that Mr. Fichtl’s physicians’ areas of expertise were more relevant to his ailments than Unum’s family medicine doctors who reviewed the files. Altogether, the court was convinced that Mr. Fichtl was disabled from the combined and cumulative symptoms of his diseases and unable to perform the duties of his occupation for at the least the initial 24 months. Accordingly, it decided that the denials of the disability and life insurance waiver benefits were wrong and granted summary judgment in favor of Mr. Fichtl. The court reinstated both his long-term disability benefits and premium waiver benefits for the date between the termination of coverage on March 3, 2020 and the conclusion of the first 24 months of payments. However, for benefits under both plans beyond the 24-month initial period, the court remanded to Unum to decide anew.

Eighth Circuit

Garwood v. Sun Life Assurance Co. of Can., No. 22-cv-1918 (MJD/DLM), 2024 WL 1285731 (D. Minn. Mar. 26, 2024) (Judge Michael J. Davis). Plaintiff Brandon Garwood’s claim for long-term disability benefits was denied by defendant Sun Life Assurance Company of Canada pursuant to the plan’s exclusion clause which states that benefits are not payable under the policy when “caused by, contributed to in any way, or resulting from…your committing or attempting to commit an assault, felony, or criminal act.” Sun Life based its denial on the events of April 23, 2020, the date of Mr. Garwood’s gunshot wounds and the cause of his lower extremity paraplegia. On that date, in Keller, Texas, Mr. Garwood was shot after an escalating altercation found him behind the driver’s seat of his truck, ramming into an occupied motorcycle and toward a group of people in a driveway, conduct that is illegal, even in Texas. Mr. Garwood was later charged with aggravated assault with a deadly weapon, a second-degree felony. The charge was ultimately dropped “based on prosecutorial discretion.” But thanks to his actions and these charges, Sun Life determined that Mr. Garwood was ineligible for disability benefits under the plan. In this decision ruling on the parties’ cross-motions for summary judgment, the court agreed. As an initial matter, the court granted Sun Life’s motion in limine to exclude extra-record evidence, which consisted of Mr. Garwood’s Social Security Administration disability award and evidence that he was executing a “three-point turn” when he hit the motorcycle and drove into the driveway. The court found that the Social Security decision was irrelevant to the application of the crime exclusion. With regard to the evidence of the three-point turn, the court held that Mr. Garwood had failed to establish good cause for why he didn’t submit this evidence to Sun Life during the administrative review of his claim. Turning to its de novo review of the summary judgment motions, the court concluded that the plan’s exclusion applies, as the record showed that Mr. Garwood “acted intentionally and knowingly with respect to driving into the driveway toward a group of people before being stopped by running into a motorcycle.” Moreover, the court concluded that the fact the charge was eventually dropped was “immaterial to the determination of whether the exclusion applies.” Accordingly, the court found that the record established that Mr. Garwood attempted to commit or committed an assault and that the benefits were therefore not payable under the policy terms. As a result, summary judgment was granted in favor of Sun Life and its denial was upheld.

Ninth Circuit

E.L. v. Hartford Life & Accident Ins. Co., No. 22-cv-00050-PCP, 2024 WL 1336463 (N.D. Cal. Mar. 27, 2024) (Judge P. Casey Pitts). Plaintiff E.L. and defendant Hartford Life and Accident Insurance Company filed cross-motions for judgment on the administrative record under Federal Rule of Civil Procedure 52 in this dispute over Hartford’s denial of E.L.’s claim for long-term disability benefits. In this order the court granted E.L.’s motion and found that she was disabled from performing the essential duties of her own occupation under de novo review of the extensive administrative record. The court wrote that a “complete and holistic review of E.L.’s medical records paints a picture of a woman with a lengthy and complex medical history.” That complex medical history included a brain tumor located on the optic nerve, diabetes, cervical and spinal conditions, a buildup of fat deposits and excess growth from a condition known as acromegaly, hormone imbalances, and an array of mental health conditions including major depression and anxiety. “Based on these records and her ongoing and worsening symptoms, E.L. has established by a preponderance of the evidence that she has been continuously disabled under the Plan.” The combination of these symptoms prevented E.L. from performing the “non-seated” and “non-reduced work schedule” of her profession as an equipment manufacturing technician at Boston Scientific Corporation. The court found that Hartford’s failures and errors in handling E.L.’s claim “were substantive, not procedural,” and it determined that she was therefore not denied a full and fair review (which presumably would have necessitated or allowed a remand). Accordingly, E.L. was granted judgment in her favor on her Section 502(a)(1)(B) wrongful denial of benefits claim, but not on her Section 502(a)(3) claim. The decision concluded with the court ordering E.L. to provide a proposed form of judgment.

Vongkoth v. PCC Structurals Inc., No. 3:22-cv-00681-AN, 2024 WL 1286537 (D. Or. Mar. 26, 2024) (Judge Adrienne Nelson). In early November 2020, plaintiff Vilasack Vongkoth was admitted to a hospital and diagnosed with a 5.5cm liver abscess surrounded by fluid. This mass and the resulting infection required a percutaneous hepatic drain and a course of antibiotics. After his discharge from the hospital, Mr. Vongkoth continued to be under the care of a team of doctors and complained of heart pain, rapid heart rate, fatigue, chest pain, and a cough. Follow-up testing on December 4, 2020 showed that the abscess was successfully cured and that there was no long fluid or hypodensity. Nevertheless, doctors noted the underlying cause of the abscess “was unclear and required additional investigation.” This date is important, because on December 4, 2020, Mr. Vongkoth’s short-term disability benefits were terminated under the ERISA-governed disability plan of his employer, defendant PCC Structurals Inc. Mr. Vongkoth administratively appealed the denial. His doctors were all in agreement that he could not work. Then, in the midst of everything, on March 9, 2021, Mr. Vongkoth got into a car accident, only making his health worse. Results from a cardiac event monitor at the time showed labile tachycardia with a resting heart rate of 119 beats per minute and a pulse of 147.7 bpm from “light activity,” as well as skipped and fluttering heartbeats. Given these results, Mr. Vongkoth’s treating physicians once again unanimously stated they did not believe he could return to his work as a grinder which involves heavy lifting and constant motion. Nevertheless, Cigna upheld its prior decision, concluding “the medical information on file does not support [plaintiff’s] functional impairment.” Its reviewing doctor noted that the liver abscess had been adequately drained and that Mr. Vongkoth’s complaints, and his treating doctor’s findings following the car accident, “did not support any work limitations” and were based on subjective self-reported symptoms. After Cigna issued its final decision, Mr. Vongkoth challenged it in this action under ERISA Section 502(a)(1)(B). PCC Structurals moved for summary judgment under abuse of discretion review. The court denied the motion in this decision finding that there were “serious questions” and “disputed issues of material fact regarding whether [defendant’s] conclusion was implausible, illogical, and unreasonable, raising a genuine issue of material fact as to whether the administrators abused their discretion in denying plaintiff benefits beyond December 4, 2020.” The court noted that the only doctor who found that Mr. Vongkoth did not have physical limitations was Cigna’s, a doctor who never personally treated or examined Mr. Vongkoth. Moreover, the record, including the results from the cardiac event monitor, contradicted the reviewing physician’s assertion that Mr. Vongkoth’s self-reported symptoms were not supported by objective medical testing. And, as the court pointed out, many of Mr. Vongkoth’s symptoms, such as his severe fatigue, are inherently subjective, and “[n]o diagnostic testing exists” for these types of symptoms, making the opinions and credibility assessments of treating physicians all the more central. Therefore, the court questioned Cigna’s doctor’s decision to not personally examine Mr. Vongkoth and wrote that it raised “questions about the thoroughness and accuracy of the benefits determination.” Thus, even under deferential review, the court denied defendant PCC Structurals’ motion for summary judgment.

Tenth Circuit

Erickson v. Sun Life & Health Ins. Co., No. 2:22-CV-00258-JNP-JCB, 2024 WL 1307167 (D. Utah Mar. 27, 2024) (Judge Jill N. Parrish). Plaintiff Kristoffer Erickson filed this action to challenge defendant Sun Life Insurance of Canada’s denial of his claim for short-term disability benefits. Mr. Erickson became ill in March 2020 with an upper respiratory infection which may have been the result of COVID-19. Mr. Erickson’s treating physician described his symptoms as “mild” and wrote that he was “cleared to return to work without restrictions.” However, this same doctor continued to care for Mr. Erickson and subsequently changed his opinion of Mr. Erickson’s condition and his ability to work. But the damage had already been done. Relying on the doctor’s initial notes and assessment prepared during the normal course of care, Sun Life denied the claim for disability benefits. In this decision, the court ruled on Sun Life’s motion for summary judgment. The court granted Sun Life’s motion in this order and affirmed the denial under deferential review. It agreed with the insurer that it had appropriately determined Mr. Erickson was not totally disabled based on contemporaneous medical information. The court stated this type of medical information is much more persuasive and credible than any later medical records “prepared with the purpose of supporting a patient’s long-term disability application.” Further, the court found no procedural errors with the denial. It “determine[d] that the methodology that Sun Life followed in denying Mr. Erickson’s benefits claim was not an abuse of discretion.” Finally, the court agreed with Sun Life that Mr. Erickson did not submit sufficient information to prove his entitlement to benefits, which is his burden under ERISA, and therefore concluded that the denial was supported by substantial evidence. For these reasons, judgment was entered in favor of Sun Life.

Life Insurance & AD&D Benefit Claims

Fourth Circuit

Bellon v. The PPG Emp. Life & Other Benefits Plan, No. 5:18-CV-114 (GROH), 2024 WL 1303911 (N.D.W. Va. Mar. 27, 2024) (Judge Gina M. Groh). In Your ERISA Watch’s July 20, 2022 newsletter we featured as one of our two notable decisions the Fourth Circuit’s decision affirming in part, and reversing and remanding in part, the district court’s summary judgment ruling in this retiree life insurance class action. At issue was eleventh-hour discovery of critical documents which revealed that in 1969 the PPG Industries Benefits Plan “took the extraordinary step of removing the then-existing reservation of rights clause…to allay employee concern about the security of promised benefits.” This rather remarkable discovery resurrected plaintiffs’ case. The court of appeals concluded that that given this uncovered information there was a genuine issue of material fact about whether the life insurance benefits had vested, and it therefore reversed defendants’ summary judgment win and remanded to the district court with the mandate to reconsider the vesting issue anew. Before the court here were several motions: (1) defendants’ objections to Magistrate Judge Robert W. Trumble’s class certification report and recommendation; (2) defendants’ motion for summary judgment; (3) plaintiffs’ motion for summary judgment; and (4) plaintiffs’ motion for default judgment against defendants for spoliation of “the critical box” of documents. The decision began by overruling defendants’ objections to Judge Trumble’s class certification analysis. The court described defendants’ objections as both “silly” and “border[ing] on being frivolous.” And it concluded that defendants’ positions were directly in conflict with the Fourth Circuit’s reversal and the mandate rule. Accordingly, “the Magistrate Judge’s thorough and thoughtful explanation [was] explicitly incorporated” by the court and the class certification analysis provided by Magistrate Judge Trumble was adopted. In a similar vein, the court rejected defendants’ summary judgment motion. Much like defendants’ objections to class certification, the court found that defendants’ arguments in favor of summary judgment ignored the Fourth Circuit’s ruling. The court ruled that agreeing with defendants’ basic position that no evidence exists which makes vesting possible would require it to completely “ignore the Fourth Circuit’s decision.” Instead, the court agreed with plaintiffs that “PPG is rehashing arguments the Fourth Circuit expressly or implicitly rejected,” and “making new arguments it never presented to the Fourth Circuit and… therefore waived” in violation of the mandate rule. Accordingly, the court found that the issue of whether the life insurance vested remains a genuine issue of material fact appropriately left for resolution at trial. Applying this same logic, the court likewise denied plaintiffs’ motion for summary judgment, albeit with less strong language. “The problem with Plaintiffs’ argument – like the Defendants’ – is that the Fourth Circuit had nearly all the evidence and arguments before it when it held that ‘vesting is a disputed issued of material fact.’” The decision then turned to the spoliation issue. Unsurprisingly, the court did not grant plaintiffs’ motion for default judgment. “Legal precedent is clear that default judgment should be reserved for cases that present the most egregious instances of spoliation – whether that is by significant bad faith, extreme prejudice to the aggrieved party, or some combination of the two.” And while the court was not comfortable stating that this was such an instance, it did come close. “There is no question that PPG’s intentional conduct caused the destruction of potentially relevant evidence. Although proof of bad faith is lacking, the circumstances are suspicious. Indeed, the Plaintiffs paint a compelling picture PPG acted in bad faith.” Rather than default judgment, the court concluded that an adverse inference was appropriate under the circumstances given PPG’s “willful” conduct which “resulted in prejudice to the Plaintiffs.” The parties were directed to meet and confer “to discuss a mutually agreeable adverse inference for the Court’s consideration.” Finally, the decision ended with the court ordering the parties to attend mediation before a magistrate judge. Perhaps, after more than six years, this case may be drawing near its end.

Seventh Circuit

Butch v. Alcoa U.S. Corp., No. 3:19-cv-00258-RLY-CSW, 2024 WL 1283531 (S.D. Ind. Mar. 25, 2024) (Judge Richard L. Young). This is the first of two decisions issued by Judge Young last week in related but separately filed class actions asserting that Alcoa retirees had vested benefits under collectively bargained ERISA welfare benefit plans. This first case concerns retiree life insurance benefits, which Alcoa unilaterally terminated on the last day of 2019. The retirees sued, arguing that Alcoa violated the terms of the governing collective bargaining agreements (CBAs) and therefore violated the Labor Management Relations Act (LMRA) and ERISA in terminating their life insurance benefits. Previously, the court certified two classes of retirees: (1) a main class consisting of those who received life insurance benefits paid for by Alcoa; and (2) a subclass consisting of those who participated in a voluntary life insurance program under which the retirees had opted to purchase additional life insurance. In this decision, the court addressed the parties’ cross-motions for summary judgment. On the merits of the ERISA and LMRA claims asserted by the main class, the court agreed with plaintiffs that the CBAs unambiguously promised life insurance benefits to eligible retirees consisting of employees who retired after June 1, 1993 under an Alcoa retirement plan and were covered by a CBA between Alcoa and the unions. Because Alcoa “terminated the company-paid life insurance plan despite its contractual promise to the contrary,” the court granted summary judgment in favor of the main class of retirees. Similarly, with respect to the sub-class of retirees, the court found that they were also entitled to summary judgment based on the plain language of the governing CBA, which plainly and unambiguously guaranteed them a right to the voluntary life insurance program for the rest of their lives and contained no language reserving the company’s right to terminate benefits. Despite ruling in favor of the retirees on their claims to vested benefits under the governing plan language, however, the court then noted that “retirees from both classes have a problem: many signed and cashed checks agreeing to waive any claims for life insurance.” In fact, 88% of the two classes did so after receiving allegedly misleading communications from Alcoa, both before and after the suit was filed. Alcoa asserted waiver as an affirmative defense with respect to the thousands of retirees who cashed their checks, and the retirees countered that the waivers were invalid as a legal matter under both the LMRA and ERISA, and as a factual matter because they were not knowing and voluntary. The court held that the plaintiffs were wrong on the first argument because nothing in the LMRA or ERISA prevented the retirees from waiving their claims as a general matter even if some of the communications about this were misleading. With respect to the retirees’ argument that the waivers were not knowing and voluntary, the court concluded that this “presents individualized factual issues in the current posture and consequently cannot be resolved on a class-wide basis.”  On this basis, although the court refused to grant either side summary judgment on the affirmative defense of waiver, the court held that “[a]ny retiree who signed and cashed the check waiving their right to life insurance – whether members of the main or sub-class – will be decertified from this class action.” Therefore, it appears that, despite decisively winning the almost final battle, the retirees lost much of the war or at least many of their comrades.  

Medical Benefit Claims

Second Circuit

Stewart v. Cigna Health & Life Ins. Co., No. 3:22-CV-769 (OAW), 2024 WL 1344796 (D. Conn. Mar. 30, 2024) (Judge Omar A. Williams). The plaintiffs allege in this putative class action against Cigna Health & Life Insurance Company that Cigna violated ERISA in the way it handled out-of-network health claims. Specifically, plaintiffs contend that Cigna had a contract with Multiplan, LLC, a third party that contracts directly with providers. The idea behind this contract was to secure a lower rate for Cigna and its insureds for certain out-of-network services provided by physicians contracted with Multiplan. However, when insureds submitted claims for services that were covered by Cigna’s agreement with Multiplan, Cigna refused to pay the Multiplan rates, thereby saddling the insureds with large bills. Several individual plaintiffs who were affected by Cigna’s decisions convinced the American Medical Association, the Medical Society of New Jersey, and the Washington State Medical Association to join them as plaintiffs. The individual plaintiffs brought three claims: one for denial of benefits and the other two for equitable relief unavailable under their first claim. The association plaintiffs asserted four claims under state law: negligent misrepresentation, tortious interference with the patient-physician contract and/or relationship, promissory estoppel, and violation of the Washington Consumer Protection Act. Cigna moved to dismiss. Addressing the individual claims first, the court agreed with plaintiffs that it could not consider the Multiplan agreements in deciding the motion to dismiss because they were extrinsic to the complaint; the individuals’ allegations only focused on Cigna’s obligations to plaintiffs, not its obligations to Multiplan. The court further found that the plan terms supported plaintiffs’ allegations, in that “participating” and “in-network” were synonymous, and thus plaintiffs plausibly relied on these terms in thinking that Multiplan providers would be paid at a certain rate. As for the breach of fiduciary duty claims, the judge ruled that these were not “circuitous” or duplicative of plaintiffs’ claims for benefits. Instead, plaintiffs “have alleged separate and specific facts which could be relevant to the denial-of-benefit claim… but which also could form the basis for an independent claim,” which was that Cigna engaged in a “underlying scheme” in which it enriched itself by refusing to reimburse providers at the Multiplan rates. The court was skeptical that plaintiffs were entitled to equitable relief, because any restitution or disgorgement would likely go to the plans and not the individuals, but the court refused to make that ruling “at this early stage of litigation.” The court then turned to the association claims, which it dismissed for lack of standing. The associations claimed that they were injured by “(1) the uncertainty they will face when treating patients such as Individual Plaintiffs, and (2) the damage that this uncertainty will inflict upon the relationship between Multiplan Providers and patients with coverage like Individual Plaintiffs.’” The court rejected this argument as “unpersuasive” because such “uncertainty” was insufficient to establish standing. Indeed, “this uncertainty does not appear any greater than that inherent in the modern healthcare system, in which providers and patients alike often are unclear as to what the out-of-pocket cost of a particular procedure might be until after a claim is submitted, which claim may be denied by insurers for myriad reasons.” Furthermore, the associations had not shown that Cigna’s actions deterred anyone from seeking healthcare with their members. The court also criticized the associations’ claims for “sound[ing] in pseudo-contract” when their members in fact had contracts with Multiplan which were reviewable and could be enforced. Thus, “it is unclear how Defendants can be held liable for exercising an entitlement [the Association plaintiffs] fairly negotiated.” In the end, Cigna’s motion was only partly successful; the individual claims survived but the associations’ claims were all dismissed.

Seventh Circuit

Kaiser v. Alcoa U.S. Corp., No. 3:20-cv-00278-RLY-CSW, 2024 WL 1283535 (S.D. Ind. Mar. 25, 2024) (Judge Richard L. Young). In this second Alcoa case, a class of retirees obtained a more decisive victory. Plaintiff Lynette Kaiser filed a class action lawsuit on behalf of pre-1993 Alcoa retirees challenging the company’s elimination of a collectively bargained healthcare plan and its replacement with a healthcare reimbursement arrangement that she asserted reduced their benefits. Plaintiffs asserted both a claim for benefits under ERISA Section 502(a)(1)(B) and a claim for equitable relief under Section 502(a)(3), as well as a claim for violation of the LMRA. An earlier change to the healthcare plan that put a cap on healthcare spending by the company had led to a retiree lawsuit more than a decade earlier in which a Tennessee district court ultimately held, at Alcoa’s urging, that the healthcare plan had promised benefits for life but such benefits were subject to the spending cap. The Sixth Circuit affirmed, explicitly agreeing with the district court that the plan promised lifetime benefits. Based on these earlier decisions, the court in this decision held that Alcoa was judicially estopped from asserting that the plan did not provide lifetime benefits, particularly because Alcoa had advocated for this result. Thus, the court held that the only remaining issue on summary judgment was whether the new health reimbursement plan was, as Alcoa argued, “reasonably commensurate with the retirees’ prior insurance plan.” The court held that it was not for three pretty obvious reasons: (1) the new plan provided that Alcoa could cancel benefits at any time; (2) only 33% of the class would be eligible for benefits under the new plan; and (3) the burden of inflation shifted to the retirees. The judge concluded that these three factors demonstrated that the new plan “significantly reduced” the “general level of benefits,” despite some evidence suggesting that employees might be somewhat better off in the short term. The court thus granted summary judgment in favor of the retirees on the claim that Alcoa violated its promises under the collective bargaining agreements governing the plan, and therefore violated the LMRA. With respect to the ERISA claims, based on the court’s understanding that Alcoa conceded that plaintiffs may receive their requested injunctive relief under Section 502(a)(1)(B), the court granted Alcoa’s motion for summary judgment with respect to the claim asserted under Section 502(a)(3).     

Tenth Circuit

Anne A. v. United Healthcare Ins. Co., No. 2:20-CV-00814-JNP-DAO, 2024 WL 1307168 (D. Utah Mar. 26, 2024) (Judge Jill N. Parrish). From January 2016 through December 2017, plaintiff Kate A. received inpatient psychiatric care at a residential mental health facility called Chrysalis. This ERISA and mental health parity action stems from United Behavioral Health’s denial of coverage of Kate’s stay at the facility. In this order, eight years later, Kate and her mother Anne were granted summary judgment on their wrongful denial of benefits claim for the denials which caused them to incur a quarter of a million dollars in unreimbursed medical expenses. The court ruled that the United Healthcare defendants, the Apple, Inc. Health and Welfare Benefit Plan, and the Apple Inc. Small Business Health Options Program failed to engage in a meaningful dialogue with Kate’s medical records and the opinions of her treating physicians throughout the appeals process and therefore abused their discretion. Although plaintiffs attempted to administratively appeal the denial by specifically referencing the voluminous medical record, which included 1,700 pages of exhibits, defendants shut “their eyes to readily available information.” Instead of referencing specific information and expressing the reasons for disagreeing, the denial letters provided only vague and conclusory explanations, without reference to and often in conflict with the medical records. Because defendants’ denials were based on medical necessity grounds, the court stressed that they were obliged to engage with the opinions of the treating doctors, especially regarding Kate’s suicide risk. Thus, their failure to do so was out of step with the Tenth Circuit’s, and ERISA’s, requirements. The decision was not a complete victory for plaintiffs, however. Although Kate and Anne were victorious on their benefits claim, the same could not be said of their Mental Health Parity and Addiction Equity Act violation claim. In that cause of action plaintiffs alleged that defendants violated the Parity Act by requiring Kate to display acute mental health symptoms “while applying a lesser standard to residential admission for analogous non-mental health care.” The court declined to rule one way or another on this claim, finding resolution premature given its remedy decision – remand. The court assumed remand “appears to be the appropriate remedy here.” It did, however, admit confusion about the somewhat murky guidelines for determining the appropriate remedy for what the court viewed as these kinds of ERISA procedural violations. Without further guidance from the Tenth Circuit on when to award benefits versus when to remand to the claim administrator, the court attempted a compromise. It structured the remand order with certain safeguards in place. Defendants, for instance, are not allowed to rely on any of their “post-hoc” rationales, nor are they given the benefit of relying on any “citations to Kate’s medical records that were [not] included in the prelitigation denial letters.” Given these restrictions, it’s unclear how any denial on remand could be anything but another abuse of discretion, which was maybe the point. The decision ended with the court taking the opportunity to sympathize with plaintiffs’ concerns with remand as a remedy. Insurance companies, the court warned, should not be allowed to use ERISA litigation to make the same denials of benefits “now based on better reasoning.”

R.J. v. BlueCross BlueShield of Texas, No. 23-CV-00177-PAB-STV, 2024 WL 1257524 (D. Colo. Mar. 25, 2024) (Judge Philip A. Brimmer). The plaintiffs, R.J. and his minor son B.J., filed this action alleging that defendant BlueCross BlueShield of Texas violated ERISA in connection with B.J.’s behavioral health treatment at Red Mountain Colorado, a licensed residential treatment facility. Plaintiffs asserted a claim for failure to pay benefits and a claim for violation of the Mental Health Parity and Addiction Equity Act. BlueCross filed a motion to dismiss, arguing first that no benefits were payable because the benefit plan’s definition of residential treatment center required that covered facilities include 24-hour onsite nursing, which Red Mountain lacked. In response, plaintiffs argued that B.J.’s treatment was medically necessary under the plan, that their benefit claim incorporated allegations that the plan’s nursing requirement violated the Parity Act, and that BlueCross did not give them a full and fair review. The court ruled in BlueCross’ favor, holding that plaintiffs could not state a claim because they were required to, but did not, allege that “Red Mountain met the Plan’s definition for covered residential treatment facilities by having 24-hour onsite nursing care.” Next, BlueCross argued that plaintiffs’ Parity Act claim should be dismissed because “there is no disparity between the Plan’s treatment of residential treatment facilities and skilled nursing facilities… Under the Plan, both residential treatment facilities and skilled nursing facilities are required to have 24-hour onsite nursing services.” Again, the court agreed with BlueCross. Plaintiffs contended that the plan’s nursing requirement for mental health facilities was inconsistent with generally accepted standards of care, but the court ruled that this was the wrong comparison. Under the Parity Act, plaintiffs were required to show a disparity between medical and mental health coverage under the plan, but “[t]here is nothing in the complaint asserting that benefits are available for analogous medical care in the absence of the 24-hour onsite nursing services required at residential treatment facilities.” In short, “Plaintiffs’ attempt to attack the use of the same or a comparable standard by reference to a separate standard is inconsistent with the Tenth Circuit test and the underlying regulations.” The court thus granted BlueCross’ motion to dismiss, albeit without prejudice.

Pleading Issues & Procedure

Seventh Circuit

Case v. Generac Power Sys., No. 21-cv-1100-PP, 2024 WL 1284607 (E.D. Wis. Mar. 26, 2024) (Judge Pamela Pepper). In the Seventh Circuit, the pleading standard for ERISA actions alleging breaches of fiduciary duties has shifted over the past few years. For a while, even readers of Your ERISA Watch might have been left shrugging their shoulders when asked where things stood. Indeed, the Supreme Court’s ruling in Hughes v. Northwestern University itself was read differently by plaintiffs and defendants, with each side seeing in it what they liked. It was not until the Seventh Circuit set out a newly formulated, context-specific pleading standard in its remand decision of Hughes II on March 23 of last year that a more settled status took shape. As things stand now in the Seventh Circuit, where “alternative inferences are in equipoise,” or equally reasonable, courts are required to resolve the matter in favor of the plaintiffs. Thus, so long as plaintiffs plead a more prudent course of action might have been available to the fiduciaries, their complaint survives a Rule 12(b)(6) challenge. The decision in this case puts that pleading standard into practice. Here, plaintiff Dereck Case moved for leave to file a second amended complaint in his class action alleging breaches of fiduciary duties owed to the participants and beneficiaries of the Generac Power Systems, Inc. Employees 401(k) Savings Plan, which he had originally filed nearly three years ago in 2021. Mr. Case argued that under the Seventh Circuit’s new pleading standard his proposed second amended complaint “plausibly alleges that Defendants violated their fiduciary duty of prudence under ERISA by incurring unreasonable recordkeeping fees as compared to other similarly-situated plans.” Mr. Case believes that the claims in his action are analogous to the plaintiffs’ allegations in Hughes II and therefore requested the opportunity to amend his complaint to comply with the new standard outlined in the Hughes II decision. Writing that it was not “certain from the face of the complaint that any amendment would be futile or otherwise unwarranted,” the court granted leave to amend. It expressly recognized that “[s]ince the defendants filed their motion to dismiss the plaintiff’s amended complaint back in December 2021 – nearly two and a quarter years ago as of this writing – the standard for pleading ERISA breach of fiduciary duty of prudence claims in the Seventh Circuit has shifted,” and given that shift “much – if not all – of defendants’ original December 2021 motion dismiss…has been rendered moot.” Particularly because Mr. Case’s motion was based on “a change in the law and not a lack of diligence,” the court granted his motion for leave to file his proposed second amended complaint and denied as moot defendants’ motion to dismiss this putative class action.

ICI Benefits Consortium v. United States Dep’t of Labor, No. 1:23-CV-00603-JPH-MG, 2024 WL 1329935 (S.D. Ind. Mar. 28, 2024) (Judge James Patrick Hanlon). Plaintiff Independent Colleges of Indiana is a group of 29 private colleges and universities in Indiana. It created a group called the ICI Benefits Consortium, the purpose of which was to form a combined healthcare benefit plan that would reduce the cost of insuring school employees. The Consortium sought an advisory opinion from the Department of Labor asking if its plan would qualify as a single employee welfare benefit plan under ERISA, but the DOL declined to answer. The Consortium then brought this action for declaratory and injunctive relief under ERISA. The DOL responded with a motion to dismiss, arguing that the Consortium did not have standing “because it has not pled a concrete, actual, or imminent injury.” Consortium argued that “two injuries confer standing: (1) if the DOL determines that the Plan does not qualify as a single plan MEWA, the Consortium and its members could face civil liability, including up to $2,586 in daily fines; and (2) it’s a ‘reasonable inference’ that the lack of guidance from the DOL has hindered other ICI member schools from joining the Consortium.” The court rejected these arguments. The court instead accepted the DOL’s position that a “lengthy chain of events” would have to happen before the DOL imposed monetary penalties, rendering the Consortium’s claims speculative, and thus there was no “‘substantial risk’ of monetary harm.” In particular, the court noted that because the Consortium was attempting to play by the book, it was less likely that the DOL would target it over other multiemployer plans that were fraudulent or abusive. As for the Consortium’s deterrence argument, the court noted that the Consortium had not alleged that any schools had declined to join because of the DOL’s refusal to issue an advisory opinion, rendering its argument speculative. Furthermore, the alleged “failure to join” was not redressable by the court because “[t]he Court has ‘no way of knowing’ how other institutions would proceed following a ruling in the Consortium’s favor, based on its allegations.” Thus, the court granted the DOL’s motion to dismiss.

Tenth Circuit

Phillips v. Boilermaker-Blacksmith Nat’l Pension Tr., No. 19-2402-TC-BGS, 2024 WL 1328378 (D. Kan. Mar. 28, 2024) (Magistrate Judge Brooks G. Severson). This case involves plaintiff participants of the Boilermaker-Blacksmith National Pension Trust who allege that their early retirement benefits were improperly terminated. Plaintiffs contend, among other things, that the trust employed a new manner of interpreting the plan’s “separation from service” provision that resulted in benefit denials and requests for reimbursement, even though the applicable plan language itself never changed. Last year, the trust filed a motion for judgment on the pleadings which the court mostly denied, a decision Your ERISA Watch chronicled as the case of the week in our April 26, 2023 edition. In August of 2023, the court certified a class of plaintiffs. Now, plaintiffs have moved to supplement their complaint based on Congress’ December 29, 2022 enactment of Secure Act 2.0, which governs the repayment of erroneously overpaid plan benefits, arguing that the trust has not complied with its requirements. In this order the magistrate judge granted plaintiffs’ motion. The court found that plaintiffs had good cause to supplement because they were unaware of their potential cause of action until September of 2023, when the trust sent letters invoking the new law. The trust objected, arguing that plaintiffs’ amendment was futile because their Secure Act 2.0 claims would only affect “a 2-person subclass of their previously certified 100+-member class,” and this new subclass did not meet the numerosity requirements of the Federal Rules of Civil Procedure governing class actions. However, the court was persuaded by plaintiffs that this issue “would better be addressed during a class certification analysis.” The court thus granted plaintiffs’ motion to supplement their complaint with their Secure Act 2.0 claims.

Provider Claims

Third Circuit

The Peer Grp. for Plastic Surgery v. United Healthcare Servs., Inc., No. 2:23-CV-02073-BRM-MAH, 2024 WL 1328134 (D.N.J. Mar. 28, 2024) (Judge Brian R. Martinotti). The plaintiff is a medical practice that specializes in post-breast cancer plastic surgery reconstruction. It performed services on four individuals who were insured under health benefit plans insured by defendant United. Plaintiff, which is out of network with United, alleged that United gave it “gap exceptions” such that United would compensate it at the in-network benefit level. However, United failed to do so. In the end plaintiff billed United for $513,290, but only received $34,017.56. Plaintiff filed suit in New Jersey state court and United removed to federal court on diversity jurisdiction grounds. Plaintiff then amended its complaint to allege three state law causes of action, and United responded by moving to dismiss, contending that plaintiff’s claims were preempted by ERISA. Plaintiff argued that it was “well settled law in the 3rd Circuit that state law causes of action for breach of contract and promissory estoppel are not preempted by ERISA when an insurance carrier makes an agreement with an ‘out of network’ provider to cover its insureds at the ‘in-network’ benefits level.” The court disagreed, ruling that plaintiff’s claims “challenge the administration of benefits” and “could have been brought under the scope of ERISA.” The court further ruled that plaintiff did not sufficiently plead that a duty independent of ERISA existed: “The Gap Exception Letters inform the Patients that surgeries conducted by out-of-network providers would be covered at the ‘in-network’ benefit level subject to the Plans. It is impossible to determine the merits of Plaintiffs’ claims without examining the provisions of their ERISA-governed Plans.” The court stated that plaintiff’s reliance on Third Circuit authority was misplaced because the gap exception letters “explicitly reference the plan,” “do not include an agreed-upon rate of payment,” and instead provided that “payment will be based on the terms of the Plans and Defendant’s reimbursement policies.” As a result, plaintiff’s claims were preempted, the court granted United’s motion to dismiss, and plaintiff was given a chance to amend its complaint to assert claims under ERISA.

Sixth Circuit

Beaumont Health v. United Healthcare Servs., Inc., No. 2:23-CV-10982, 2024 WL 1317772 (E.D. Mich. Mar. 26, 2024) (Judge Stephen J. Murphy, III). Plaintiff Beaumont Health alleged that it treated a woman involved in a motor vehicle accident in 2020, providing services worth $208,045.39. The woman was insured through an ERISA-governed employee health benefit plan administered by defendant United. Beaumont brought this action in Michigan state court contending that United had failed to pay benefits for the treatment. United removed the case to federal court on ERISA preemption grounds and filed a motion for summary judgment. Beaumont did not respond to the motion. United’s motion was based on its assertion that Beaumont had never made a claim for the provided services. Beaumont admitted that it did not submit a claim but argued that it did not know about it until December of 2021. However, according to the court, “no evidence suggests that Plaintiff filed a claim after December 2021.” The court noted that the plan required submission of claims prior to payment, and thus “without a claim, Defendant United cannot be liable to Plaintiff to provide coverage for those services.” As a result, the court granted United’s motion for summary judgment.

Ninth Circuit

Aguilar v. Coast to Coast Comput. Prods., Inc., No. 2:23-CV-03996-MCS-E, 2024 WL 1319777 (C.D. Cal. Mar. 26, 2024) (Judge Mark C. Scarsi). The plaintiffs in this case, Christine Aguilar and her medical provider, Minimally Invasive Surgical Associates and Advanced Weight Loss Surgical Associates, are currently on their third amended complaint. They allege, in a single count under ERISA for payment of plan benefits, that defendant United Healthcare, the insurer of Aguilar’s medical benefit plan, refused to pay for Aguilar’s EGD and hiatal hernia procedure. Defendants filed a motion to dismiss, arguing that plaintiffs (1) did not have standing and (2) had failed to state a claim. The court rejected defendants’ standing argument, ruling that plaintiffs had adequately amended their complaint to address this issue. Plaintiffs had satisfactorily pleaded that Aguilar assigned her rights to the provider, and that the assignment was not conditional or revoked. Furthermore, they had alleged they were harmed by defendants’ refusal to pay, in the amount of $101,046. Defendants had more success with their second argument. The court noted that the plan provided that obesity and weight loss surgery is only covered if performed by in-network providers, and that coverage is only available for “medically necessary” services. However, plaintiffs “fail to grapple with these provisions.” Thus, “[u]ntil Plaintiffs cure their complaint to identify a provision that entitles them to benefits, their § 502(a)(1)(B) claim fails.” The court thus granted defendants’ motion on this ground, but “[b]ecause the Court has not previously dismissed on this ground, dismissal is with leave to amend.” Perhaps the fourth time will be the charm.

Remedies

Second Circuit

McCutcheon v. Colgate-Palmolive Co., No. 16 Civ. 4170 (LGS), 2024 WL 1328217 (S.D.N.Y. Mar. 28, 2024) (Judge Lorna G. Schofield). On March 22, 2023, Your ERISA Watch featured the Second Circuit’s decision in this action as the case of the week. The case involves complicated calculations of the class action plaintiffs’ cash balance pension plan benefits. After remand from the Second Circuit two issues remained: “(1) which interest rate Defendants must use to calculate the benefit attributable to employee contributions when determining a grandfathered participant’s Plan Appendix C § 2(b)(ii) Account-plus-Employee Contribution benefit and (2) whether Defendants may apply a PRMD (pre-retirement mortality discount) when adjusting the age 65 residual annuity due to a participant who takes her retirement benefits before age 65.” These two issues were cleared up in this order and were resolved in the retirees’ favor. First, the court held that defendants “must use the 20+1% interest rate to calculate the benefit attributable to (both employer and) employee contributions for a participant’s § 2(b)(ii) benefit.” The court expressed that up until now “Defendants themselves have consistently applied the 20+1% rate to both components of the § 2(b)(ii) benefit – the employer and employee contributions.” As defendants were unable to point out any clear error, change in intervening law, or new evidence, the court rejected defendants’ arguments as waived and clarified this first calculation point. The same was true for the pre-retirement mortality discount calculations. Once again, the court stressed that defendants “never previously raised [their] argument” and “under the law of case doctrine, Defendants cannot apply a PRMD to adjust the age 65 residual annuity for a participant who takes early retirement.” The court stated that the purpose of the residual annuity was to remedy the plan’s previous present value violations and therefore would permit defendants to adjust the lump sum in such a way as to decrease the value of the benefit paid to an amount lower than the accrued benefit determined by IRC § 417(e). Thus, defendants were not allowed to apply the pre-retirement mortality discount to adjust the residual annuity “from age 65 to payment age.” Having decided these issues, the court revised its final judgment, as plaintiffs requested, to clarify the manner of calculations and ensure that fancy math did not get in the way of make-whole relief.

Venue

Tenth Circuit

Trevor T. v. California Physicians’ Service, No. 1:22-CV-00140 JNP, 2024 WL 1330040 (D. Utah Mar. 28, 2024) (Judge Jill N. Parrish). Plaintiffs, three family members, brought this action against California Physicians’ Service (“Blue Shield”), alleging that it unlawfully denied a claim for healthcare benefits under ERISA for treatment received by one of the plaintiffs. Plaintiffs live in Orange County, California, Blue Shield is based out of Oakland, California, and the treatment at issue was administered in Utah, where the suit was filed. Blue Shield moved to transfer venue to the Northern District of California under 28 U.S.C. § 1404(a), arguing that this location was “a closer and more convenient venue for all parties and witnesses.” Plaintiffs opposed and filed a motion for sanctions arguing that Blue Shield had misrepresented facts to the court. Addressing the venue motion first, the court agreed that the suit could have been filed in the Northern District of California and thus considered whether that venue was more appropriate. The court noted that Utah’s only connection to the dispute was the treatment facility, and “[i]n the context of ERISA, this court has routinely declined to defer to a plaintiff’s choice of forum where the location of plaintiff’s treatment was the only connection to the forum.” None of the parties resided in Utah, the plan was not administered there, the failure to pay did not occur there, and the decision to deny benefits was not made there. Furthermore, the relevant witnesses and documents were in California where the claim was administered, and a judgment against Blue Shield would be easier to enforce in California where it is headquartered. Thus, the court granted Blue Shield’s motion to transfer venue. As for plaintiffs’ motion for sanctions, the court determined it was “wholly without merit.” Plaintiffs “failed to satisfy the safe-harbor provision of Federal Rule of Civil Procedure 11(c)(2), spared no expense in briefing an argument tangential to the issue of where Plaintiffs’ claims were administered, not processed, and impugned defense counsel’s character in the process.” As a result, in a surprising turnabout, the court stated that it would issue a separate order to show cause why plaintiffs should not be sanctioned for their motion for sanctions.