Carfora v. Teachers Ins. Annuity Ass’n of Am., No. 21 Civ. 8384 (KPF), 2024 WL 2815980 (S.D.N.Y. May. 31, 2024) (Judge Katherine Polk Failla)

ERISA was designed to hold plan sponsors, administrators, and other fiduciaries to high standards in order to protect workers’ retirement and welfare benefits. ERISA has proved adaptable throughout its fifty-year history. As this case illustrates, with a bit of creativity its protective scheme can be applied in a multitude of ways in order to accomplish these goals. The plaintiffs here had to be imaginative in their effort to advance past the pleading stage, and were rewarded by the court.

This lawsuit is yet another chapter in the story of the alleged years-long scheme by defendant Teachers Insurance Annuity Association of America (TIAA) to enrich itself by driving ERISA-governed plan participants away from their plans and into TIAA-sponsored proprietary offerings through a behavior known as “cross-selling.”

According to the plaintiffs, in the mid-2010s TIAA recognized it was “rapidly losing revenue from its institutional retirement plan business, as those institutional clients moved their assets from TIAA to larger competitors” such as Vanguard and Fidelity.

To compensate for this revenue loss, TIAA devised a plan. It tripled its sales force, hiring hundreds of new advisors and sales representatives, and tied their employment, compensation, and bonuses to goals related to cross-selling TIAA’s individual advisory business, called “Portfolio Advisor.” Investors in Portfolio Advisor are required to pay various fees to TIAA in using the program.

Those fees added up. The scheme was remarkably successful and extremely lucrative for the company. In five short years TIAA’s annual revenues increased from $2.6 million in 2013 to $54 million in 2018.

Plaintiffs John Carfora, Sarah Putnam, and Juan Gonzales are university professors and researchers who are participants in benefit plans administered by TIAA. In their original class action complaint, filed in 2021, they alleged that TIAA breached its fiduciary duties under ERISA by misleading them and trying to convince them to roll their ERISA-governed assets into Portfolio Advisor.

According to plaintiffs, TIAA engaged in pernicious sales techniques. TIAA used a multi-step pitch process in which it cold-called participants to “offer free financial planning services, often describing the service as an included benefit of the plan.” In doing so, TIAA used information it had obtained through its administration of the participants’ ERISA-governed accounts. TIAA personnel allegedly held TIAA out as a “trusted” advisor, emphasized TIAA’s “non-profit heritage,” represented that they met fiduciary standards, and stated they were “objective” and “non-commissioned.”

Internally, TIAA allegedly called participants with large accounts “WHALES,” and its advisors were trained to discover “pain points” that would help them upsell the participants. In fact, plaintiffs alleged that TIAA’s training materials encouraged advisors to “Mak[e] the Client ‘Feel the Pain’” so they could “convince the client that he or she needed the high-touch services offered by Portfolio Advisor.”

Plaintiffs further alleged that TIAA instructed its advisors to engage in “hat-switching,” in which they would wear a “fiduciary hat when acting as an investment adviser representative and a non-fiduciary hat when acting as a registered broker-dealer representative.” These instructions were apparently (and understandably) confusing to both TIAA advisors and plan participants.

Plaintiffs contended that this arrangement also led to conflicts of interest, as advisors received bonuses based on asset growth and meeting sales goals, but did not receive bonuses based on keeping participants invested in their ERISA-governed plans or moving assets into self-directed IRAs.

To top it all off, plaintiffs alleged that Portfolio Advisor underperformed, thereby causing them to pay higher fees for results that were no better than if they had just stayed put in their ERISA investments.

There was only one catch: plaintiffs’ claims were based on the premise that when TIAA engaged in these alleged shenanigans it was acting in a fiduciary capacity under ERISA. In 2022, the district court rejected this premise in an order granting TIAA’s motion to dismiss. (This decision was Your ERISA Watch’s notable decision in our October 5, 2022 edition.)

In its order, the court fundamentally disagreed with the plaintiffs that TIAA was functioning as a fiduciary, either explicitly or functionally, when it solicited the rollovers: “TIAA’s pitch to plan members to roll assets out of their plans and into Portfolio Advisor necessarily did not create a fiduciary relationship.”

Plaintiffs retrenched and sought to find a workaround. They filed a motion for reconsideration in which they asked the court to reopen the case and allow them to amend their complaint to advance a new theory of liability. This theory would not be based on TIAA’s breach of fiduciary duty, but on its knowing participation in the plan sponsors’ breaches of fiduciary duties “by allowing TIAA’s affirmative and unchecked cross-selling on their watch.”

Remarkably, even though the district court noted that plaintiffs’ motion “faces numerous hurdles,” it ruled in an August 2023 order that plaintiffs cleared some of them. (We covered that ruling in our August 30, 2023 edition.) While the court refused to reconsider its decision that TIAA was not a fiduciary, it did allow plaintiffs to file an amended complaint advancing their new argument.

The operative complaint now alleges that the sponsors of plaintiffs’ benefit plans breached their fiduciary duty of prudence by failing to detect or address TIAA’s cross-selling activities. Separately, plaintiffs also aver that the sponsors should have investigated how much money TIAA was indirectly generating through its cross-selling strategy, and that they breached their duty to monitor administrative expenses and service provider compensation by not factoring in this significant source of revenue. As for TIAA, plaintiffs alleged that it, as the architect of the scheme, knowingly participated in these breaches.

Once again, TIAA moved to dismiss. It made two arguments: (1) plaintiffs could not establish that the plan sponsors breached any fiduciary duty in retaining TIAA as a service provider; and (2) plaintiffs failed to allege sufficient facts to establish that TIAA was a knowing participant in any such breach.

The court rejected the first argument, noting that “Plaintiffs have alleged a detailed account of conduct on the part of TIAA and to the detriment of plan participants that no prudent ERISA Plan Sponsor, acting solely in the interest of the participants, would have allowed to occur.” The court emphasized one plaintiff’s account of how he had been pressured by TIAA, and his allegations that “the issues associated with TIAA’s cross-selling were not specific to his case, but were in fact known across the industry as problematic practices by defined-contribution plan recordkeepers such as TIAA.”

TIAA contended that the complaint improperly focused on its conduct and was light on detail regarding the conduct of the plan sponsors, whose breaches were crucial in establishing TIAA’s liability. However, the court stated that “Plaintiffs’ theory of breach lies in the inaction of Plan Sponsors, such that this lack of detail is not necessarily fatal to Plaintiffs’ claims… Drawing all inferences in Plaintiffs’ favor, the Court finds that TIAA’s ability to engage in a multi-year campaign of cross-selling supports the implication that the Plan Sponsors failed to identify and address the problem,” which was sufficient to support the duty of prudence claim.

The court also found that plaintiffs had properly alleged that the plans breached their fiduciary duty to monitor TIAA. The court endorsed plaintiffs’ theory that “the 2,000% increase in TIAA’s cross-selling revenues over the relevant five-year period supports a reasonable inference that the Plan Sponsors failed to monitor TIAA’s fees, given that the increase far outstrips anything that TIAA would have seen in its ordinary course of business servicing ERISA plans.” Armed with this knowledge, the sponsors “should have recognized that growth in revenue and taken it into account when negotiating TIAA’s compensation as a recordkeeper.”

Instead, the plan sponsors allowed TIAA to “receive unreasonable compensation, because TIAA’s actual compensation included both its contractual fees and the increasingly large amount of indirect revenue derived from cross-selling.” In short, for the court it was “the sheer magnitude of the increase in revenue, coupled with the fact that TIAA’s cross-selling allegedly provided little benefit to the plans themselves,” that supported plaintiffs’ theory.

Indeed, the cross-selling “ostensibly burdened the plans it serviced by allegedly sowing confusion amongst plan members regarding the benefits of maintaining their assets in an ERISA plan, and ultimately incentivizing at least some plan members to roll assets out of the plan in favor of TIAA’s non-plan offering.”

The court then addressed TIAA’s second argument, which was that plaintiffs could not prove that TIAA was a knowing participant in any breach. Given the extensive allegations about TIAA’s conduct in the complaint, the court made short work of this contention: “Plaintiffs have alleged in great detail the systematic efforts on TIAA’s part to drive members from their ERISA plans and into TIAA-sponsored offerings, with little upside to those participants. Such allegations suffice to establish knowing participation for the purposes of a motion to dismiss.”

In the end, the court was satisfied that TIAA’s alleged actions, and the plan sponsors’ alleged inactions, together exposed TIAA to ERISA liability, even if it was not a fiduciary, because it had knowingly participated in breaches by the sponsors. Accordingly, the court denied TIAA’s motion in its entirety, and plaintiffs can now finally progress past the pleadings, three years after filing their original complaint.

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

Breach of Fiduciary Duty

Eighth Circuit

Dionicio v. U.S. Bancorp, No. 23-CV-0026 (PJS/DLM), 2024 WL 2830693 (D. Minn. Jun. 4, 2024) (Judge Patrick J. Schiltz). Two participants of the U.S. Bank 401(k) employee benefit plan have sued the plan’s fiduciaries on behalf of a putative class under ERISA. On March 21, 2024, the court granted in part and denied in part U.S. Bank’s motion to dismiss for failure to state a claim. (A summary of that decision can be found in Your ERISA Watch’s March 27, 2024 edition.) In response, U.S. Bank filed a motion to certify the denial-in-part for interlocutory appeal to the Eighth Circuit Court of Appeals. Its motion was denied by the court in this order. The court stressed that motions for certification must be granted sparingly and only under exceptional circumstances. It stated concisely, “U.S. Bank has not come close to meeting its ‘heavy burden.’” The court held that U.S. Bank’s challenge to its plausibility determination did not implicate a controlling question of law for the purposes of certification under 28 U.S.C. § 1292(b). Further, the court was cautious not to establish a precedent where “the denial of any motion to dismiss would create an ‘exceptional’ case warranting immediate appeal.” More to the point, the court disagreed with U.S. Bank that there were differences over or questions about the applicable legal standards for a motion to dismiss a claim alleging breach of ERISA’s fiduciary duty of prudence. To the contrary, the court stated, “the applicable standards are well-settled.” Finally, the court held that certification would not materially advance the termination of litigation, and would likely have the reverse effect, accomplishing little more than slowing progress. Thus, the court concluded U.S. Bank failed to meet its burden of establishing that circumstances warranted interlocutory appeal and therefore denied the motion for certification.

Ninth Circuit

Nagy v. CEP Am., No. 23-cv-05648-RS, 2024 WL 2808648 (N.D. Cal. May. 30, 2024) (Judge Richard Seeborg). In this putative class action two participants of the Vituity 401(k) Profit Sharing Plan have sued the plan’s fiduciaries under ERISA. Plaintiffs allege several breach of fiduciary duty and prohibited transaction claims. According to the complaint, Vituity and its retirement benefit committee selected Schwab as plan recordkeeper and chose to invest in an unreasonably low-yield Schwab savings account because the company also uses Schwab to administer its defined benefit pension plan and Schwab offered it a no-fee deal on the pension plan if it made these decisions in the 401(k) plan. In other words, plaintiffs allege that the costs of the 401(k) plan were subsidizing the pension plan for Vituity’s benefit. Plaintiffs allege the plan paid per-participant per-year fees of approximately $250 to $450 to Schwab alone. Remarkably, these were not all of the fees the plan paid. In addition, plaintiffs challenge the fees Vituity collected for itself for administrative fees, which ranged from $236 to $411 per participant per year. Plaintiffs allege that all told the plan paid more than $600 per participant in annual administrative fees to Schwab and Vituity. (Your ERISA Watch believes that these alleged fees are the highest we have ever reported on.) Defendants moved to dismiss the complaint. They challenged the standing of one of the plaintiffs, as well as the sufficiency of the claims alleged. Defendants’ motion to dismiss was granted in part, without prejudice, and denied in part. The court began its discussion with defendants’ standing challenge. Vituity argued that one of the plaintiffs lacked Article III standing to assert his claims because he signed a waiver releasing his ability to bring ERISA claims against it. The court disagreed, and relied on Ninth Circuit authority holding that a plaintiff does not release Section 502(a)(2) claims brought on behalf of the plan by signing an individual release. Accordingly, the court held that the named plaintiff had standing to bring this action. The court then switched gears to evaluating the sufficiency of each of the claims. First, the court concluded that the complaint amply alleged that defendants plausibly breached their duty of prudence by paying excessive administrative fees to Schwab. “The complaint alleges Schwab offered ‘standard services typical of other recordkeepers’ despite receiving these higher fees, and that Vituity also provided (and charged for) services to the Plan that were, in theory, not provided by Schwab, demonstrating that the scope of services Schwab offered the Plan was limited.” The court clarified that plaintiffs “need not provide even more granular, micro-level ‘apples to apples’ comparisons, based on data to which they may not yet have access, in order to survive a motion to dismiss.” Therefore, defendants’ motion to dismiss the fiduciary breach claims relating to the excessive administrative fees paid to Schwab were denied. However, the court contrasted the Schwab fee ruling with its holdings regarding plaintiffs’ fee allegations pertaining to Vituity. “In comparison with the complaint’s allegations concerning administrative services provided by Schwab, Plaintiffs are less specific in alleging what administrative services Vituity provided the Plan… Plaintiffs do not plead sufficient facts to raise a plausible inference that the fees Vituity charged were excessive – or, for that matter, that there was anything out of the ordinary in Vituity providing administrative services to the Plan.” In order to state a plausible claim, the court advised plaintiffs that they needed to supply “some non-speculative basis for determining whether such administrative services were excessive.” Thus, the court dismissed the fiduciary breach claim relating to Vituity’s fees for failure to state a claim. Next, the court analyzed the fiduciary breach claims relating to the Schwab savings account. Plaintiffs claim that choosing this investment option for the plan was imprudent because of its predictably low rate of returns. In response, defendants rationalized their investment choice by highlighting the fact that it is insured by the Federal Deposit Insurance Corporation. The court stated that “determining what constitutes a reasonable rate of interest depends on the goals of a particular investment decision. That a money market fund may offer a lower rate of return compared to say, a stable value fund does not in itself raise a plausible inference of imprudence given the different risks each type of fund poses.” Here, the court concluded that the context of the allegations does not currently support a claim that is plausible on its face. FDIC insurance, the court found, could justify an investment decision for a fund offering such low returns. Without more, it said defendants’ selection of the Schwab savings account was not obviously or even plausibly imprudent. The dismissed claims were granted with leave to replead, should plaintiffs wish to overcome these identified defects. Finally, the court scrutinized the prohibited transaction claims. It held that under Ninth Circuit precedent both prohibited transaction claims should go forward, as defendants’ justifications under the statute’s exceptions constitute affirmative defenses. ERISA plaintiffs, the court explained, need not defeat affirmative defenses in their complaint in order to state prohibited transaction claims.

ERISA Preemption

Second Circuit

Park Ave. Podiatric Care, P.L.L.C. v. Cigna Health & Life Ins. Co., No. 23-1134-cv, __ F. App’x __, 2024 WL 2813721 (2d Cir. Jun. 3, 2024) (Before Circuit Judges Lee, Merriam, and Kahn). This dispute revolves around the underpayment of foot surgeries to an out-of-network healthcare provider, plaintiff-appellant Park Avenue Podiatric Care, P.L.L.C. The provider filed its complaint against Cigna Health & Life Insurance Company seeking the difference between the $197,350 in services it billed to the insurance company (based on a promise by Cigna to pay 80% of the customary rate) and the $7,199 Cigna actually paid. The district court determined that Park Avenue Podiatric’s New York state common law claims for breach of contract, unjust enrichment, and promissory estoppel, as well as its claim for violating New York’s Prompt Pay Law, were preempted by ERISA Section 514(a). The provider appealed the dismissal of its action. The Second Circuit affirmed in this unpublished decision. It held that the district court correctly determined that the assertions in Park Avenue Podiatric’s complaint make clear that the existence of the ERISA-governed healthcare plan is “a critical factor in establishing liability” against Cigna. For instance, the appeals court wrote that the provider explains “its entitlement to reimbursement [by relying] on the plan, alleging that ‘[n]ot all plans provide out-of-network benefits, but when they do Cigna determines the amount Cigna will allow for a covered service to an out-of-network provider.’ This assertion alone implies that [appellant] understood that if [the patient’s] ERISA-governed plan provides for out-of-network benefits, the extent of Cigna’s obligations to [it] would be defined by the plan’s terms.” Accordingly, the court of appeals agreed with the lower court that Cigna’s obligation and legal duty to pay arises from the ERISA plan, rendering the state law claims expressly preempted. Finally, the Second Circuit disagreed with Park Avenue Podiatric that the district court erred by incorporating the ERISA-governed plan into its complaint by reference. “Because the plan terms and effects were relied upon in [Park Avenue Podiatric’s] complaint, and integral to its adjudication, the district court did not err in considering the submitted portions of the plan.” For these reasons, the appeals court affirmed the judgment of the district court.

Eighth Circuit

Brown v. United Healthcare Corp., No. 1:24-cv-1025, 2024 WL 2819540 (W.D. Ark. Jun. 3, 2024) (Judge Susan O. Hickey). Following the death of her son, plaintiff Janice Brown filed a claim for life insurance benefits with her son’s employer-sponsored life insurance plan under which she was the named beneficiary. Her claim for benefits was denied by defendant United Healthcare Corporation. Ms. Brown administratively appealed the adverse benefit determination and then filed suit in Arkansas state court alleging one claim for breach of contract against United Healthcare for failure to pay the life insurance benefits. United removed the action to federal court and then moved to dismiss the state law claim as preempted by ERISA. Ms. Brown did not file a response to United’s motion to dismiss. In this action the court granted United’s motion, with prejudice. It concluded that Ms. Brown’s breach of contract claim was obviously preempted by ERISA. The court concluded that the life insurance policy is unquestionably an employee benefit plan governed by ERISA. Moreover, the court found that Ms. Brown’s breach of contract claim is expressly premised on the ERISA-governed plan and United Healthcare’s allegedly improper denial of Ms. Brown’s claim for benefits under the plan. Therefore, the court held that the state law claim “plainly ‘relates to’ the administration of an ERISA plan and is preempted by ERISA.” Accordingly, the court agreed with United that Ms. Brown failed to state a claim upon which relief can be granted and dismissed the complaint pursuant to Rule 12(b)(6).

Medical Benefit Claims

Ninth Circuit

N.C. v. Cross, No. 23-35381, __ F. App’x __, 2024 WL 2862586 (9th Cir. Jun. 6, 2024) (Before Circuit Judges Miller and Bumatay, and District Judge Richard D. Bennett). Mother and son N.C. and A.C. sued Premera Blue Cross under ERISA to challenge its denial of their claim for benefits related to A.C.’s 14-month stay at a residential treatment facility. On de novo review, the district court concluded on summary judgment that A.C.’s stay was “both clinically appropriate and adhered to the generally accepted standards of care,” and granted judgment in favor of the family, concluding they were entitled to coverage. Premera Blue Cross appealed, questioning the district court’s consideration of guidelines from the American Academy of Child and Adolescent Psychiatry. The Ninth Circuit saw no problem with this, as these guidelines were “part of the administrative record,” and therefore “fully within the district court’s discretion to consult.” Additionally, the appeals court noted that “generally accepted standards of medical practice” is an ambiguous term, and the district court was thus permitted to consider evidence outside the administrative record to interpret its meaning. Moreover, A.C.’s treating providers agreed that less intensive lower levels of care were ineffective and that continued residential treatment for A.C. was necessary. Finally, the appeals court focused on furthering the goal of protecting the reasonable expectations of the insured family. “Because the plan does not reference the InterQual criteria, let alone necessitate their application, it was reasonable for N.C. to expect that treatment deemed medically necessary by A.C.’s treating physicians would be covered under the plan.” Thus, the court of appeals concluded that the district court did not err in concluding that the treatment was medically necessary and covered by the plan, and accordingly affirmed its holdings.

W.H. v. Allegiance Benefit Plan Mgmt., No. CV 22-166-M-DWM, 2024 WL 2830792 (D. Mont. Jun. 4, 2024) (Judge Donald W. Malloy). Between November 2017 and September 2020 plaintiff Z.H. received mental health treatment at three inpatient facilities. During this period, Z.H. experienced severe symptoms of self-harm, including cutting and attempts at suicide, and went through the traumatic aftermath of sexual assault. Despite this background, her family’s claims for reimbursement of her inpatient treatment were denied by defendant Allegiance Benefit Plan Management Inc. Allegiance, as third-party claims administrator of the Health Benefit Plan for Employees of Kalispell Regional Healthcare, denied the claims, concluding that this level of treatment was not medically necessary. After exhausting the administrative appeals process, Z.H. and her father W.H. commenced this action against Allegiance and Kalispell Regional Healthcare asserting three causes of action under ERISA: wrongful denial of benefits, violation of the Mental Health Parity and Addiction Equity Act, and a claim for statutory penalties for failure to produce documents upon request. The parties filed cross-motions for summary judgment. Their motions were each granted in part and denied in part by the court in this decision. As an initial matter, the court spelled out that the plan unambiguously grants full discretionary authority to defendants and that the abuse of discretion review standard therefore applies. Under the highly deferential standard of review, the court upheld the benefit denials, although it agreed with plaintiffs that Allegiance ignored evidence that Z.H. engaged in self-harm. “Plaintiffs are correct that the record shows Z.H. had engaged in and threatened self-harm in the days and weeks leading up to her [treatment]… However, this fact is not dispositive. While Defendants’ medical reviewers rejected the idea that Z.H. was indeed suicidal or in danger of harming herself…a conclusion to the contrary would satisfy only the first prong of three necessary criteria under the Milliman Care Guideline.” Broadly, the court disagreed with plaintiffs that the denials were contingent on the suicidality/self-harm factor, “but rather the fact that a lower level of care was a safe option.” The court found that it was reasonable to read Z.H.’s medical records and conclude that substantial evidence supported a finding that an outpatient level of care was appropriate treatment for her. Further, the court was satisfied that defendants’ denial letters constituted a full and fair review under ERISA as they provided specific reasons for each denial and meaningfully responded to the family’s arguments on appeal. Thus, the court concluded that defendants had not abused their discretion in reaching the denials and accordingly granted summary judgment in favor of defendants on the wrongful denial of benefits claim. Next, the court held that defendants did not violate the Parity Act. “The Parity Act merely prohibits plan administrators from ‘employ[ing] different processes, strategies, or evidentiary standards’ to their medical necessity determinations… It does not prohibit different outcomes.” Here, the fact that the plan uses the Milliman Care Guidelines to establish medical necessity classifications and policies for both mental health and physical healthcare was evidence to the court that there was no disparity between the treatment of one and the treatment of the other. Accordingly, defendants were also granted judgment on the Parity Act claim. However, the decision ended with a silver lining for plaintiffs. Judgment was granted in their favor on their statutory penalties claim. The court agreed with plaintiffs that defendants violated the Parity Act’s statutory disclosure requirements by failing to produce a complete copy of the medical necessity criteria and copies of documents used to identify nonquantitative treatment limitations when these documents were specifically requested in writing by the family. “Comparing this request against the statute and the Parity Act Regulations, Defendants were required to provide Plaintiffs with the requested documents.” For this violation, the court ordered defendants to pay the family $110 per day from November 8, 2021, 30 days after the date of their written request, through the date this suit was filed, September 28, 2022, for a total of 294 days and $32,340. Finally, the court declined to rule on prejudgment interest, attorneys’ fees, or costs at this time.

Pleading Issues & Procedure

Second Circuit

Cunningham v. USI Ins. Servs., No. 21 Civ. 01819 (NSR), 2024 WL 2832924 (S.D.N.Y. Jun. 3, 2024) (Judge Nelson S. Roman). A participant of the USI 401(k) Plan, plaintiff Lauren Cunningham, initiated this putative class action against USI Insurance Services, LLC, its board of directors, and the plan committee, alleging defendants breached their fiduciary duties in their administration of the plan. The court previously dismissed Ms. Cunningham’s amended complaint and granted her leave to file a second amended complaint. She did so on February 6, 2024. Once again, defendants sought leave to file a motion to dismiss. The court granted defendants’ motion and pursuant to the briefing schedule their motion to dismiss was set to be fully briefed on June 3, 2024. In the interim, Ms. Cunningham filed a motion seeking a court order requiring defendants to produce the plan’s recordkeeping agreements to “complete the record,” or in the alternative, to convert the motion to dismiss into a motion for summary judgment. In this brief decision the court denied Ms. Cunningham’s motion. The court disagreed with Ms. Cunningham that defendants were required to produce these documents in order to create a complete and accurate record for the motion. “Having a ‘complete record,’ however, is immaterial to whether the Court should consider materials outside of the pleadings on a motion to dismiss. At this juncture, the relevant inquiry is whether Plaintiff incorporates the recordkeeping agreements by reference or relied on them in drafting the SAC. Plaintiff does neither.” Accordingly, the court stated that it may not take judicial notice of the recordkeeping agreements and may not consider them in deciding the motion to dismiss, and therefore declined to order defendants to produce them now. Nor did the court convert the motion to dismiss into one for summary judgment as it will not be considering matters outside of the pleadings. Ms. Cunningham’s requests were therefore denied.

Remedies

Sixth Circuit

Aldridge v. Regions Bank, No. 3:21-CV-00082-DCLC-DCP, 2024 WL 2819523 (E.D. Tenn. Jun. 3, 2024) (Judge Clifton L. Corker). Stories of private equity and corporate raiding are part of the zeitgeist of 2020s America. This action tells one of those tales. It is the story of the restaurant chain Ruby Tuesday, Inc. as told from the vantage point of its franchise managers and other highly compensated employees. Back in the early 1990s the company set up two top hat plans for its upper management, the Executive Supplemental Pension Plan and the Management Retirement Plan. These two plans had their assets in a tax-deferred irrevocable grantor trust which was invested in company-owned life insurance policies. The trust assets were treated as general assets of Ruby Tuesday and therefore subject to the claims of creditors of the company. Because of this trust arrangement the beneficiaries of the plans were vulnerable to the risk of losing their benefits in the event of the company’s bankruptcy, which is exactly what happened. First, in December 2017, Ruby Tuesday was bought by the private equity firm NRD Capital. Following the sale, Ruby Tuesday did not fully fund the trust. Nor did the trustee, defendant Regions Bank, take any action to enforce the employer’s obligation to do so. Through a series of events between 2019 and 2020, Ruby Tuesday’s board of directors terminated the plans, provided written notice to Regions Bank that it was insolvent, and filed for Chapter 11 bankruptcy. The bankruptcy court ordered Regions Bank to liquidate and transfer the trust assets to the bankruptcy estate. Because of what took place, the participants and beneficiaries of the two top hat plans allege they lost over $35 million in benefits. They initiated this action seeking to regain what they had lost. Originally, the 96 plaintiffs filed various state law causes of action, in addition to claims for relief under ERISA. The court narrowed the scope of the case, leaving only plaintiffs’ claim for equitable relief under ERISA Section 502(a)(3). The parties filed cross-motions for summary judgment on this one remaining claim. In this decision, the court granted judgment in favor of Regions Bank and denied plaintiffs’ cross-motion. Plaintiffs alleged “Regions violated its duties as Trustee by failing to adequately protect the Trust property for the benefit of the Plaintiffs as beneficiaries of the Trust, failing to inform the Plaintiff beneficiaries of the rights upon a Change of Control, failing to take action against [Ruby Tuesday] to enforce [its] obligations under the Trust, and failing to distribute the benefits to Participants upon the termination of the Plans.” To begin, the court noted that top-hat plans are exempt from ERISA’s fiduciary requirements. It stated that plaintiffs could not reassert their previously dismissed breach of fiduciary duty claim “under the guise of ERISA § 502(a)(3).” The court then said that even if it assumed plaintiffs demonstrated the bank violated the terms of the trust and the plans, “under principles of federal common law, the relief available under ERISA § 502(a)(3) is limited.” The court focused much of its discussion on the flaws in the equitable relief plaintiffs sought under Section 502(a)(3). Plaintiffs made clear they sought relief in the form of equitable surcharge equaling the amounts each individual would have been entitled to under the plan prior to Ruby Tuesday’s bankruptcy. “Plaintiffs’ ERISA claim, however, hits roadblocks at every turn.” The court was unmoved by plaintiffs’ classification of their relief as equitable. Rather, it viewed their requested relief as compensatory damages, and “money damages are, of course, the classic form of legal relief.” Despite characterizing their relief as equitable, the court concluded that plaintiffs were truly “seeking monetary compensation for the full amount of benefits they would have received under the Plans prior to [Ruby Tuesday’s] Chapter 11 bankruptcy.” Thus, the court did not feel this relief was appropriate or available under Section 502(a)(3). Finally, the court highlighted the undisputed fact that Regions does not possess the trust assets, as they were liquidated and transferred to the bankruptcy estate and then disbursed to Ruby Tuesday’s creditors. For these reasons, the court held that plaintiffs’ ERISA claim failed as a matter of law and thus granted judgment in favor of the trustee.

Withdrawal Liability & Unpaid Contributions

Sixth Circuit

Operating Engineers’ Local 324 Fringe Benefit Funds v. Rieth-Riley Constr. Co., No. 23-1699, __ F. App’x __, 2024 WL 2852006 (6th Cir. Jun. 5, 2024) (Before Circuit Judges Boggs, Kethledge, and Murphy). Plaintiffs-appellants are seven ERISA-governed fringe benefit funds. The funds brought suit against an employer, Rieth-Riley Construction Company, seeking a court order compelling an audit of records from Rieth-Riley related to contributions it paid to the funds pursuant to an expired collective bargaining agreement. In the end, the district court granted summary judgment in favor of Rieth-Riley. It concluded that the funds’ claims under ERISA and LMRA require an active contract and that here, none existed. The district court held “that the Funds had failed to plead a claim for pre-expiration records; and that the Funds’ claim for post-expiration records failed because Rieth-Riley and the Funds no longer had any agreement then.” The funds appealed. In this decision the Sixth Circuit affirmed. First, the court of appeals agreed with the lower court that the complaint said, “or at least strongly suggested – that Rieth-Riley’s ‘indebtedness’ began on August 1, 2019,” and that the funds therefore failed to frame their audit demand to include pre-expiration records relating to the employer’s contributions to the funds. “Here – given what the Complaint said and did not say – we agree with the district court that the Complaint did not state a claim for pre-expiration records.” Second, the Sixth Circuit found that there was not convincing evidence of an existing contract that obligated the employer to make contributions to the funds after the expiration of the collective bargaining agreement. In fact, the funds at first rejected Rieth-Riley’s contributions after the expiration of the collective bargaining agreement, and both the district court and the appeals court considered this strong evidence that even the funds themselves “thought no agreement existed then.” Both ERISA and LMRA require an active contract. Here, the funds could point to no source of an unexpired contract to which both parties mutually assented. “And suffice it to say that, though the record includes plenty of evidence that Rieth-Riley wanted to continue contracting, it includes zero evidence that the Funds or Local 324 did. The district court was correct to grant summary judgment on the Funds’ claim for an audit of post-expiration records.” Accordingly, the district court’s judgment was affirmed. Circuit Judge Danny Boggs dissented in part from the majority opinion. In Judge Boggs’ view, the funds adequately pleaded a claim to audit Rieth-Riley’s pre-termination contributions. Judge Boggs disagreed with his colleagues that the funds were required to attach the audit letter to their complaint in order to state a plausible claim. “The Complaint itself is not an audit request. Rather, it seeks to enforce a previously made audit request. And this previously made audit request (for the period before the CBA’s termination) arose as a contractual right for the Funds and obligation for Rieth-Riley. The majority appears not to dispute this. Further, Rieth-Riley does not dispute the content or authenticity of the letter. Nor does it dispute that it responded to the letter by producing some but not all of the requested documents. I do not see how a party can be unfairly surprised by a claim that references a document that the party not only received but answered.” Judge Boggs therefore respectfully dissented from the majority for faulting the funds for not attaching the document, and he therefore differed from the majority’s conclusion that the complaint never alleged a pre-termination indebtedness claim.

Bristol SL Holdings, Inc. v. Cigna Health & Life Ins. Co., No. 23-55019, __ F.4th __, 2024 WL 2789835 (9th Cir. May 31, 2024); Bristol SL Holdings, Inc. v. Cigna Health & Life Ins. Co., No. 23-55019, __ F. App’x __, 2024 WL 2801531 (9th Cir. May 31, 2024) (Before Circuit Judges S.R. Thomas, Bress, and Johnstone)

When we think of ERISA welfare benefit litigation, we typically think of plan participants suing insurance companies. However, when it comes to medical benefits, we are increasingly seeing suits where the plaintiff is the health care provider, not the patient. In a statutory scheme where the participant is the focus, this raises questions. Should the courts treat providers differently from patients? What rights do providers have under ERISA? Must they bring their claims pursuant to ERISA, or can they bring alternative state law claims?

This week’s notable decision is the latest effort by the federal courts to answer some of these questions. The plaintiff was Bristol SL Holdings, Inc., which to complicate matters further is not even a health care provider. Instead, it is a holding company owned by three former shareholders of Sure Haven Inc., a now-defunct drug rehabilitation and mental health treatment center.

Many of Sure Haven’s patients were insured by defendant Cigna, and had assigned their rights under their benefit plans to Sure Haven to seek reimbursement from Cigna for the cost of their treatment. For several years, Cigna reimbursed Sure Haven without incident. However, Cigna began to suspect that Sure Haven was engaged in “fee forgiveness,” a practice where providers waive or do not collect from their patients the financial contributions the patients are required to pay under their plans (such as deductibles and co-pays).

Cigna contended that this practice, which the parties agreed was not permitted under the plans, “inflates insurance costs at an insurer’s expense by eliminating the financial incentive for patients to seek cheaper in-network care.” (Cigna has been particularly aggressive in policing its fee forgiveness prohibitions.)

Eventually Cigna flagged Sure Haven’s account and began denying its claims unless it provided proof of payment by its patients. In the end, Cigna refused to pay claims for 106 patients totaling $8.6 million. Sure Haven filed for bankruptcy, and after settlement talks broke down, Bristol initiated this action as Sure Haven’s successor-in-interest in 2019, alleging claims under ERISA and California law.

At first, Cigna attacked the ERISA claims on the ground that Bristol lacked standing. Cigna contended that while ERISA allows treatment providers to sue, that rule did not extend to Bristol, which was a step further down the assignment chain. This argument was successful with the district court, but in 2022 the Ninth Circuit reversed, holding that “the first assignee as a successor-in-interest through bankruptcy proceedings who owns all of one healthcare provider’s health benefit claims has derivative standing” under ERISA. (This decision was Your ERISA Watch’s notable decision in our January 19, 2022 edition.)

Back in the district court, Cigna advanced its next argument, which was that Bristol’s state law claims for breach of contract and promissory estoppel were preempted by ERISA. Again, the district court ruled in favor of Cigna, and again, Bristol appealed.

This time Bristol was not as fortunate. The Ninth Circuit first explained the Supreme Court’s familiar test under ERISA’s “clearly expansive” preemption provision, which is that a state law is preempted by ERISA if it has a “reference to” or a “connection with” an ERISA plan. Under the “reference to” prong, a claim must be either “premised on the existence of an ERISA plan” or “the existence of the plan is essential to the claim’s survival.”

The Ninth Circuit had no trouble concluding that Bristol’s state law claims satisfied this test. The court noted that when Sure Haven called Cigna, “the context for this communication concerned whether reimbursement was available under the ERISA plans that Cigna administers.” Furthermore, Sure Haven “was seeking clearance to provide what all agree were plan-covered services,” and the reason its claims were denied was because of a plan provision barring fee forgiveness. Finally, any damages suffered by Sure Haven could not be calculated without consulting the plans, which set forth payment rates. Sure Haven’s claims thus had an “impermissible ‘reference to’” ERISA plans.

The Ninth Circuit arrived at the same conclusion regarding the “connection with” prong. The court explained that a state law “has an impermissible connection with an ERISA plan if it governs a central matter of plan administration or interferes with nationally uniform plan administration, or if it bears on an ERISA-regulated relationship.”

The court ruled that Bristol’s claims satisfied at least the first two of these elements. First, Bristol’s contract law argument was that by verifying plan coverage in pre-treatment telephone calls, Cigna had created an obligation to pay for claims. However, the Ninth Circuit ruled that this alleged obligation would intrude on plan administration. It “would be at odds with the way ERISA plans operate, because reimbursement under a plan is ultimately contingent on information and events beyond the initial verification and preauthorization communications.” The court noted that Bristol’s argument would place Cigna in a “Catch-22” in which “administrators must abandon either their plan terms or their preauthorization programs.” This is “the kind of intrusion on plan administration that ERISA’s preemption provision seeks to prevent.”

For the same reasons, Bristol’s state law claims impermissibly “governed a central matter of plan administration.” The Ninth Circuit stated that “if providers could use state contract law to bind insurers to their representations on verification and authorization calls regardless of plan rules on billing practices, benefits would be governed not by ERISA and the plan terms, but by innumerable phone calls and their variable treatment under state law.” The court ruled that ERISA was designed to prevent this type of “discordant regime.”

In so ruling, the Ninth Circuit distinguished cases cited by Bristol purportedly giving it the right to bring its state law claims. The court found that these cases either involved situations where the ERISA plan at issue no longer applied, or where the insurer falsely informed the provider that the patient had coverage for a particular treatment. Neither scenario applied here, where the Sure Haven patients were indisputably covered by ERISA plans for the services at issue. Thus, Bristol’s state law claims were preempted.

Thus ended the Ninth Circuit’s decision regarding Bristol’s state law claims; the court found them preempted and affirmed. But, you may be wondering, what about Bristol’s ERISA claims that were the subject of its first appeal?

The Ninth Circuit disposed of those claims in a separate memorandum disposition (the second of the two rulings linked above). The district court had ruled in Cigna’s favor on these claims as well, finding that Cigna did not abuse its discretion in determining that Bristol’s claims were not payable because of the plans’ fee-forgiveness prohibitions.

Bristol challenged both the standard of review and the merits of Cigna’s decisions, but the Ninth Circuit affirmed on both issues. First, the court ruled that Cigna had discretionary authority in making its decisions, even if that power was conferred in summary plan descriptions, because the SPDs were valid plan documents and there was no overriding formal benefit plan to the contrary in evidence.

Second, the court ruled that (1) Cigna engaged in “meaningful dialogue” with Sure Haven by explaining that its denials were based on the fee-forgiveness provisions, (2) Cigna reasonably interpreted the plan provisions barring fee-forgiveness, and (3) the evidence supported Cigna’s denials because they were based on an internal investigation, letters to Sure Haven patients, an undercover inquiry into Sure Haven’s rates, and audits of patient records.

As a result, after two trips to the Ninth Circuit and three separate decisions from that court, Bristol was left empty-handed on all of its claims. Preemption proponents now also have another arrow in their quiver.

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

Arbitration

Ninth Circuit

Yagy v. Tetra Tech, Inc., No. CV 24-1394-JFW(ASx), 2024 WL 2715900 (C.D. Cal. May 17, 2024) (Judge John F. Walter). Plaintiff Tamara Yagy is a participant of the Tetra Tech, Inc. and Subsidiaries Retirement Plan. Ms. Yagy commenced this putative class action alleging that the fiduciaries are mismanaging the plan by allocating forfeited nonvested employer contribution funds toward future Tetra Tech contributions to the plan instead of applying them toward plan expenses. She asserts claims for fiduciary breaches, prohibited transactions, and violations of ERISA’s anti-inurement provision. Defendants filed a motion to compel arbitration. The plan’s arbitration provision provides that all claims, disputes, and controversies by participants must be referred to and resolved by confidential binding arbitration. The provision additionally contains a class action and representative action waiver, and requires awards of individual relief. Importantly, the plan also contains a savings clause which states in the event the class action waiver, or any other section of the arbitration provision is found to be unenforceable “the arbitration process as mandated in this Section 8.5 is still required with the minimum change necessary to allow the arbitration requirement to be permissible and/or enforceable.” Tetra Tech moved for an order requiring Ms. Yagy to arbitrate each of her claims on an individual basis and stay the action pending completion of arbitration. Ms. Yagy opposed, and argued the arbitration clause restricts statutory remedies available to her under ERISA and therefore falls within the effective vindication doctrine, meaning they function as “a prospective waiver of a party’s right to pursue statutory remedies.” Ms. Yagy therefore contends that she should be able to seek plan-wide monetary and equitable relief in arbitration. In this decision, the court disagreed. The court was receptive to defendants’ interpretation of the Supreme Court’s 2008 ruling in LaRue v. DeWolff, Boberg & Assocs., Inc., arguing that a participant in a defined contribution plan may sue only to recover losses to his or her individual account, without any recovery for other accounts. The court wrote that Section 502(a)(2) doesn’t suggest that a plaintiff “has an unqualified right to bring a collective action to recoup all of a fiduciary’s losses and gains at once.” Instead, the court agreed with defendants that participants have the authority “to sue a fiduciary for ‘appropriate relief,’ which does not necessarily “include the right to pursue plan-wide monetary relief, rather than relief for a participant’s own district harm.” Accordingly, the court held that although the arbitration provision limits Ms. Yagy to obtain only relief available in her individual capacity, it does not prospectively waive a substantive statutory remedy. The court noted that this particular arbitration provision was distinguishable from other out-of-circuit opinions of late where courts have found arbitration provisions within ERISA benefit plans unenforceable under the effective vindication doctrine. This was so, the court said, because those waivers prohibited a plaintiff “from obtaining any relief that had a plan-wide effect, including for example, the removal of a fiduciary, even though such relief was expressly contemplated by ERISA and would have been available in his or her individual capacity.” In contrast, here, the provision expressly stated that it will not limit any right or relief that may be awarded under ERISA. Given this, the court ruled that the arbitrator may award Ms. Yagy any relief available to her under ERISA “including relief that would benefit the Plan such as removal of a fiduciary.” Therefore, the court granted defendants’ motion to compel arbitration and stayed the action pending the completion of arbitration proceedings. 

Breach of Fiduciary Duty

Ninth Circuit

Perez-Cruet v. Qualcomm Inc., No. 23-cv-1890-BEN (MMP), 2024 WL 2702207 (S.D. Cal. May. 24, 2024) (Judge Roger T. Benitez). Plaintiff Antonio Perez-Cruet is a participant in the Qualcomm, Inc. defined contribution pension plan. In this action he is making very similar claims to those in the Yagy case above. He is litigating whether the fiduciaries of the plan are violating ERISA’s fiduciary duties, engaging in prohibited transactions, and violating the anti-inurement principle by choosing to use forfeited plan contributions to reduce their own future contribution obligations to employees rather than spending the money to defray administrative expenses borne by the plan participants. In essence, Mr. Perez-Cruet argues in his complaint that defendants are putting their own financial interests over those of the participants and beneficiaries every time they chose to put forfeited non-vested plan contributions towards future contribution obligations instead of spending it on administrative costs. Accordingly, he contends that defendants are not acting for the exclusive purpose of benefiting plan participants, are breaching their duty of prudence, inuring plan assets to their own benefit, engaging in prohibited transactions, and breaching their duty to monitor one another. Defendants moved to dismiss, arguing the claims are not plausible because they rely on a mistaken premise that un-vested employer contributions are plan assets. In support of their motion to dismiss defendants relied heavily on proposed guidance from the Department of Treasury stating that a defined contribution pension plan may use forfeited contribution money to do reduce employer contributions under the plan as well as to pay plan administrative expenses, or to increase benefits to plan participants. The court stated throughout its decision that the plausibility standard in ERISA cases is context-sensitive. “Taken in context, Plaintiff describes plausible claims for relief.” Regarding the Treasury Department’s proposed regulation, the court noted that it has not yet been adopted, that it has no force of law, and that it does not come from the Secretary of the Department of Labor “who has authority to define what are assets of a pension plan” under ERISA. Therefore, the court held that the proposed regulation does not have sufficient authority to persuade it that plaintiff’s claims are implausible. In contrast, the court viewed Mr. Perez-Cruet’s narrative as supporting plausible claims for ERISA violations. “Had Defendants used the $1,222,072 of forfeited nonvested contributions from 2021 toward paying Plan administrative expenses, all Plan participants would have benefited by incurring no administrative expense charge to their accounts. Instead, all Plan participants had to pay for administrative expenses that could have been reduced to zero had the Defendants chosen to use forfeited contributions in that way.” It was therefore plausible to the court that defendants are not acting prudently or in the exclusive interest of the plan members, and that they are potentially using what may be plan assets in a way that benefits themselves. The court acknowledged that two important questions are still open: (1) whether nonvested forfeited employer contributions fall within the definition of “plan assets”; and (2) whether nonvested forfeited contributions fall within Section 1103’s exception for “mistaken contributions.” However, the court found “little authority supporting the argument against finding [the claims] to be plausible,” and therefore concluded that they pass the plausibility test to survive the motion to dismiss. As a result, defendants’ motion was denied and the complaint was left undisturbed.

Class Actions

Third Circuit

Luense v. Konica Minolta Bus. Sols. U.S.A., No. 20cv6827 (EP) (JSA), 2024 WL 2765004 (D.N.J. May. 30, 2024) (Judge Evelyn Padin). A putative class of participants and beneficiaries of the Konica Minolta Business Solutions U.S.A. Inc. 401(k) Plan moved for class certification in their breach of fiduciary duty action. The participant plaintiffs allege that Konica, its board of directors, and the plan committee violated their duties of prudence and monitoring by selecting and retaining unreasonably expensive and poorly performing investment funds and by paying excessive compensation in recordkeeping and administrative expenses to Prudential Retirement Insurance and Annuity Company. Plaintiffs sought certification pursuant to Federal Rule of Civil Procedure 23 and appointment of the named plaintiffs as class representatives and Edelson Lechtzin LLP and Berger Montague PC as class counsel. Their motion was granted in this order. To begin the court analyzed the proposed class under the four prongs of Rule 23(a) – numerosity, typicality, commonality, and adequacy. First, the court concluded that the 8,000-member class satisfies numerosity. Second, the court agreed with plaintiffs that questions over the defendants’ conduct are common and plan-wide. The court stated, “the ‘glue’ holding the class together is whether fiduciary duties owed to the entire class were breached and ‘the common answer to the factual question of whether Defendants violated ERISA is sufficient to advance the resolution of the entire class.’” Third, the court found plaintiffs typical of the absent class members as the allegedly “flawed selection process makes uniform the claims for all Plan participants regardless of whether the named Plaintiffs invested in the exact funds alleged to be imprudent.” With regard to allegations of the excessively costly fees, the court expressed it couldn’t image plan members who “are content to pay, pointless fees.” The court therefore disagreed with defendants’ argument that the class certification motion fails because of intra-class conflicts. Fourth, the court found the interests of the named plaintiffs sufficiently aligned with the interests of the absent class members and their counsel to be competent, experienced ERISA class action litigators who are more than qualified to satisfy the adequacy requirement. The court further found the proposed class readily ascertainable based on the included Form 5500s. Finally, the court concluded that certification under Rule 23(b)(1) is appropriate. Multiple actions, the court determined, run the risk of leading to inconsistent and incompatible results and standards, making certification suitable under Rule 23(b)(1)(A). In addition, the court stated that plaintiffs’ claims brought on behalf of the plan alleging breaches of fiduciary duties on the part of the defendants “will, if true, be the same with respect to every class member,’ and thus ‘Rule 23(b)(1)(B) is clearly satisfied.’” For these reasons, the court granted plaintiffs’ motion, certified the proposed class, and appointed class representatives and class counsel.

Fourth Circuit

Trauernicht v. Genworth Fin., No. 3:22-cv-532, 2024 WL 2749831 (E.D. Va. May. 29, 2024) (Judge Robert E. Payne). Class representatives Peter Trauernicht and Zachary Wright have sued the fiduciary of the Genworth Financial Inc. Retirement Savings Plan, Genworth Financial, Inc., on behalf of themselves, the plan, and other similarly situated individuals for breaching its duties under ERISA and causing substantial losses to the plan. Genworth moved to exclude the expert opinions and testimony of plaintiffs’ two experts, Mr. Richard Marin and Dr. Adam Werner. Mr. Marin provided expertise on liability and damages as a former plan fiduciary and board member, asset manager, professor of finance and economics, and the author of a book on pension issues. Dr. Werner relied on Mr. Marin’s opinions and selected comparator funds to calculate the losses to the plan, which he put at over $34 million. Genworth objected to Mr. Marin’s qualifications, investment monitoring framework, the application of his methodology, and the selection of the comparator funds and investment options. Genworth also objected to Dr. Werner’s damages analysis, saying it rests on the opinions of Mr. Marin which the company views as unreliable. The court disagreed with Genworth on each point and denied its motions to exclude. To start, the court found Mr. Marin qualified and possessing specialized knowledge to provide an expert opinion on investment selection and monitoring in the context of ERISA defined contribution retirement plans. Next, the court stated that the methodology used by Mr. Marin “removing a fund after a certain number of quarters for violating specified performance criteria” is reliable under Rule 702 and “is neither new or unique. Instead, it is a well-established method reflective of common-sense.” Moreover, the court concluded that the investment monitoring framework Mr. Marin adopted was readily and appropriately applied to the facts of the case. To the court, it was “not unreasonable to believe that Genworth would have considered those various types of peer funds to be potential alternatives,” which included funds with different investment strategies. “Whether Genworth would have actually replaced [the challenged funds] with a differently managed fund goes to the weight rather than the admissibility of Marin’s opinion.” The court further clarified that Genworth’s challenges to the correctness and thoroughness of Mr. Marin’s opinions should be addressed during cross-examination and through rebuttal evidence. Should Genworth prove Mr. Marin’s views are truly “as arbitrary or as groundless as [it] claims, then the Court can give the testimony no weight.” At this juncture, however, the court was satisfied that Mr. Marin’s expert opinions are sufficiently reliable. Because Genworth’s challenges to Dr. Werner’s testimony derived from its challenges to Mr. Marin’s testimony, the court ruled that Genworth’s objection to Dr. Werner’s testimony likewise failed. Accordingly, neither of plaintiffs’ experts’ opinions were eliminated or reduced by the court’s order and defendant’s motion was denied.

Exhaustion of Administrative Remedies

Fifth Circuit

Brushy Creek Family Hosp. v. Blue Cross Blue Shield of Tex., No. 1:22-CV-00464-JRN, 2024 WL 2789389 (W.D. Tex. May. 30, 2024) (Magistrate Judge Susan Hightower). Plaintiff Brushy Creek Family Hospital, LLC treated a patient enrolled in an ERISA-governed health insurance policy administered by Blue Cross Blue Shield of Texas. After the patient was discharged from the hospital, Brushy Creek submitted claims for the treatment to Blue Cross totaling $51,419. Blue Cross paid only $197.44. In response, Brushy Creek submitted a claim review form to Blue Cross requesting it reconsider its payment determination. Blue Cross did not modify its conclusion. The parties then engaged in mediation of the decision with the Texas Department of Insurance. This too proved unfruitful. Accordingly, litigation followed. Brushy Creek sued Blue Cross in state court asserting state law claims. Blue Cross removed the action to federal court, and Brushy Creek subsequently amended its complaint to assert a claim under ERISA Section 502(a)(1)(B). Now Blue Cross moves for summary judgment. It argues that Brushy Creek failed to exhaust administrative remedies because it never appealed the claim determination using the procedure authorized by the plan. In this decision the assigned magistrate recommended Blue Cross’s motion be granted. First, the magistrate agreed with Blue Cross that Brushy Creek needed to submit an appeal through the process available to the plan participant. It rejected Brushy Creek’s argument that the claim review it submitted was permitted because it was “not specifically excluded by the Plan as an appeal.” The decision stated that the “exhaustion requirement is not excused when a Plaintiff argues that the Plan’s information is incomplete because the plaintiff has a ‘duty to seek the necessary information even if it has not been made available.’” Therefore, the magistrate concluded that the alternative claim review process Brushy Creek perused to resolve the dispute was insufficient to be considered exhaustion of the plan’s claims appeals process of adjudication. Therefore, the magistrate agreed with Blue Cross that the provider failed to exhaust its administrative remedies. The magistrate also disagreed with Brushy Creek that Blue Cross was estopped from asserting failure to exhaust because it never invoked the provisions of the ERISA plan or referred the provider to the proper appeals avenues when the parties were engaged in mediation. Blue Cross, the magistrate ruled, “correctly argues that Brushy Creek failed to ‘make clear it was filing a member-authorized appeal’ because it did not provide [the patient’s] authorization in writing.” As a result, the magistrate did not view the circumstances of this case as demonstrating that Blue Cross affirmatively misled Brushy Creek. Instead, the magistrate concluded that Blue Cross carried its burden to demonstrate that the hospital failed to exhaust administrative remedies and concluded that the hospital failed to show it was entitled to an exception to the exhaustion requirement. Therefore, the magistrate recommended the district court grant Blue Cross’s motion for summary judgment as the ERISA claim for benefits is barred for failure to exhaust.

Life Insurance & AD&D Benefit Claims

Fifth Circuit

Harris v. UnitedHealth Grp., No. 3:23-CV-02486-E, 2024 WL 2734974 (N.D. Tex. May. 28, 2024) (Judge Ada E. Brown). In 2020, an employee of UnitedHealth, Brenda Harris, was diagnosed with colon cancer. Her illness forced her to retire. At the time of her retirement, UnitedHealth mailed her a COBRA Enrollment Notice and information on life insurance conversion. Ms. Harris opted to enroll in COBRA. However, she later decided to end her cancer treatment and discontinue paying the COBRA premiums. She did not realize that COBRA benefits included the life insurance policy premiums in addition to healthcare insurance. “Thus, by discontinuing the COBRA payment and not returning the [Individual Life Conversion Request for Information], both healthcare insurance and life insurance would be terminated as to the Harrises.” At this point, Ms. Harris was getting sicker and sicker. She suffered a stroke and then doctors found a cancerous brain tumor. Ms. Harris died on December 30, 2021. In this action, her widower, Rex Harris, brings claims of violation of ERISA/COBRA, violations of Texas insurance regulating laws, breach of the common law duty of good faith and fair dealing, and declaratory judgment against UnitedHealth and the plan administrative committee for their actions during this period when Ms. Harris was vulnerable and mentally and physically declined, which Mr. Harris alleges led to the loss of life insurance coverage for the family. Defendants moved to dismiss, seeking dismissal of all claims for failure to state a claim pursuant to Rule 12(b)(6). In this decision the court granted the motion to dismiss. Defendants argued that Mr. Harris did not plausibly allege that the COBRA and life insurance notices were vague or that they could not be understood by an average participant. In addition, defendants asserted that they have no duty to provide individualized advice to participants about how to maximize their plan benefits under Fifth Circuit precedent. The court took each of these arguments in turn, and agreed with UnitedHealth on both. First, “the Court agrees that the notices provided to Brenda Harris were perfectly clear and that Harris fails to point to any specific provision of the COBRA Notice or the Life Insurance Notice that is deficient, unclear, or confusing.” Second, the court stated that there is no heighted duty requiring employers to follow up and ensure an individual understands the notices they were provided with, even under circumstances like those alleged here where that individual is suffering from physical and cognitive decline. Instead, the court stated that “nothing in the record [demonstrates] Defendants did not make a good faith effort to provide notification; Harris does not allege such notification was not given, but rather that the notification given was insufficient. Defendants timely sent Brenda Harris her COBRA Notice and her Life Insurance Notice written in a manner to be understood by the average plan participant, and thus Defendants have satisfied their duty under this circuit’s precedent.” Accordingly, the court decided that Mr. Harris failed to state claims under ERISA and COBRA. The court then turned to the state law claims, and determined that they were preempted by ERISA as they essentially sought ERISA-governed benefits via alternative routes. Moreover, the court agreed with defendants that the state law claims directly affect the relationship between a beneficiary and a plan administrator and are premised on an alleged failure to provide proper notice of the right to continued benefits, which is governed exclusively under ERISA. Thus, the court found each of the state law claims impermissibly relates to the ERISA plan and is therefore preempted. For these reasons the court granted the motion to dismiss in its entirety. The court’s dismissal was with prejudice. It determined that amendment would be futile.

Pension Benefit Claims

Third Circuit

Luciano v. Teachers Ins. & Annuity Ass’n of Am., No. 15-6726 (RK) (JBD), 2024 WL 2702341 (D.N.J. May. 24, 2024) (Judge Robert Kirsch). Plaintiff Lorraine Luciano filed a claim with the Teachers Insurance and Annuity Association of America seeking to recover her husband’s pension benefits. Her claim for 100% of her deceased husband’s Qualified Preretirement Survivor Annuity under the Educational Testing Service 401(a) Plan was denied. Instead, defendants paid Ms. Luciano only a 50% benefit. Civil litigation and then arbitration followed. In 2020, the arbitrator determined that the plan terms unambiguously required full benefit payments to Ms. Luciano and issued an award in her favor. On July 26, 2023, the court affirmed the arbitration award. In that same decision, however, the court also granted defendants’ motion for equitable reformation of the plan. Defendants sought to amend the 401(a) Plan to correct a scrivener’s error which resulted in the plan language accidentally eliminating the 50% Qualified Preretirement Survivor Annuity benefit. The court in that decision ruled that the motion was timely and that defendants had not waived their argument for equitable reformation by not raising it during the administrative proceedings or arbitration proceedings. The court further concluded that defendants met their burden of proving that the drafting error was unintentional, providing for a 50% benefit was always intended, and no participants saw the plan language containing the error. Accordingly, the court allowed Educational Testing Service and TIAA to amend the plan to reflect their intent to provide the 50% benefit. Ms. Luciano moved for reconsideration. She argued that the court’s previous opinion had three clear errors: (1) defendants waived their reformation claim by not raising it in arbitration because equitable reformation was a subject of arbitrability and the arbitrator should have decided the issue; (2) the court ignored the arbitrator’s and previous district court findings that the plan called for 100% Qualified Preretirement Survivor Annuity; and (3) defendants waived their reformation argument by failing to advance it during the administrative proceedings. The court denied Ms. Luciano’s motion. It viewed her motion as simply a disagreement with its decision, recycling old arguments that the court previously considered and found unconvincing in its order last July. “On its own, this regurgitation of a previously rejected argument with no new facts or law is enough to deny Plaintiff’s Motion.” The court once again concluded that equitable reformation was not within the scope of arbitration, and defendants had not waived their right to seek equitable reformation for failing to raise it during either the administrative review or during arbitration proceedings. Thus, the court declined to deviate from its earlier holdings and denied Ms. Luciano’s motion for reconsideration.

Pleading Issues & Procedure

Ninth Circuit

Goodsell v. Teachers Health Tr., No. 2:23-cv-01510-APG-DJA, 2024 WL 2750467 (D. Nev. May. 29, 2024) (Judge Andrew P. Gordon). Teachers and other employees of the Clark County School District in Nevada bring this action on behalf of themselves and other similarly situated individuals against various individuals and entities in charge of the Teachers Health Trust, a health benefit coverage trust, for grossly mismanaging the plan. As relevant here, plaintiffs sue the former chairman of the Teachers Health Trust Board, Michael Steinbrink, for negligence, gross negligence, breach of fiduciary duty, negligent misrepresentation, violations of Nevada insurance regulations, per se negligence, consumer fraud, and fraudulent misrepresentations and omissions. Mr. Steinbrink moved to dismiss all of the claims against him. The court granted the motion, with leave to amend. Those familiar with ERISA will recognize immediately that this plan is not governed by ERISA because it is maintained by government entities for its employees and therefore exempted from ERISA. Nevertheless, the health trust at issue here expressly states that it is meant to conform to ERISA’s requirements and that “the trustees shall follow the constraints of ERISA.” Accordingly, the court applied ERISA principles in this decision, including analyzing the impact of the Supreme Court’s decision in Thole v. U.S. Bank on the employees’ standing. Relying on Thole, the court concluded that here the plaintiffs are entitled to “defined benefits” and that they have no equitable interest or property rights in the Teachers Health Trust’s funds. “Therefore, to the extent that Steinbrink caused a loss to the [Teachers Health Trust], that claim belongs to [the trust], not individual plan participants.” Therefore, the court agreed with Mr. Steinbrink that plaintiffs, as plan participants, have a problem with standing under Thole to sue for waste of the trust’s funds. However, the court agreed with plaintiffs that the Supreme Court left open the possibility that participants in defined benefit plans may have standing to allege waste of plan funds if they allege “the mismanagement of the plan was so egregious that it substantially increased the risk that the plan and the employer would fail to be able to pay the participants’ future…benefits.” Here, the court said plaintiffs have not currently alleged as much, but granted them leave to amend their claims relating to the depleted trust funds because there is a possibility they may be able to do so, particularly as the trust was experiencing monthly deficits of over $200,000 and board meetings included concerns that the plan was at unsustainably low funding levels. Nevertheless, the court dismissed plaintiffs’ claims for benefits against Mr. Steinbrink with prejudice because the trust agreement’s plain language states participants cannot sue trustees for the trust’s failure to pay a plan benefit, meaning trustees cannot be held personally liable. The remainder of the decision went over more of Mr. Steinbrink’s arguments for dismissal, such as identifying potential problems with statutes of limitations, the lack of private rights of action under state insurance laws, and analyzing sufficiency of the pleadings on the merits of each of the claims. Thus, Mr. Steinbrink’s motion to dismiss was granted and plaintiffs were given leave to replead their claims and file a third amended complaint consistent with this order.

Provider Claims

Third Circuit

Abira Med. Labs. v. Avera Health Plans, No. 23-03465 (GC) (TJB), 2024 WL 2721390 (D.N.J. May. 28, 2024) (Judge Georgette Castner). This action is just one of more than forty filed by plaintiff Abira Medical Laboratories, LLC suing health insurance companies, healthcare plans, welfare funds, third-party plan administrators, and plan sponsors for failure to pay for lab testing including reimbursement of COVID-19 tests. In this particular case that Your ERISA Watch has chosen as an exemplar, Abira sues Avera Health Plans and its affiliates for breach of contract, breach of the implied covenant of good faith and fair dealing, fraudulent misrepresentation, negligent misrepresentation, promissory estoppel, equitable estoppel, quantum meruit, unjust enrichment, and violations of the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Avera Health Plans moved to dismiss for lack of personal jurisdiction and for failure to state a claim. Despite not asserting a cause of action under ERISA or alleging that the health insurance plans are governed by ERISA, Abira “contends that personal jurisdiction is appropriate here because ‘ERISA is unique for having relaxed jurisdictional requirements.’” Like other courts in the District of New Jersey have done, this court rejected Abira’s attempt to invoke ERISA’s jurisdictional provisions without asserting a count under ERISA. Defendant argued that even if the court were to construe the amended complaint liberally to view it as asserting claims for benefits under ERISA, neither Abira nor plan members pursued administrative appeals, so any ERISA claim would have to be dismissed for failure to exhaust administrative remedies. The court stated that it would only decide failure to exhaust at the summary judgment stage. Nevertheless, it wrote, “Plaintiff has not plausibly established it has standing to pursue an ERISA claim for benefits.” Accordingly, the court stated that ERISA jurisdictional provisions are not properly invoked in this case and therefore spent the remainder of the decision examining whether it has general or specific jurisdiction over Avera Health Plans as to the state common law claims and the alleged violations of the FFCRA and the CARES Act. Ultimately, it concluded that it did not. The court held that defendant is not incorporated or headquartered in New Jersey and does not conduct business in the state so as to give rise to general jurisdiction. Further, the court concluded that Abira failed to state sufficient bases for specific jurisdiction and that nearly identical allegations have been rejected by the Third Circuit as creating specific jurisdiction. Accordingly, the court found that it does not have jurisdiction over Avera Health Plans and therefore granted the motion to dismiss the action.

Fifth Circuit

Guardian Flight LLC v. Health Care Serv. Corp., No. 3:23-CV-1861-B, 2024 WL 2786913 (N.D. Tex. May. 30, 2024) (Judge Jane J. Boyle). The plaintiffs in this action are two air ambulance providers, Guardian Flight LLC and Med-Trans Corporation. Air ambulances are emergency healthcare services that transport individuals by helicopter to hospitals when they are experiencing severe medical distress. Before the No Surprises Act was passed in 2022, patients often got hit with large medical bills when they received out-of-network emergency services such as air ambulance transportation. This occurred through a practice called “balance billing,” in which patients were responsible for the difference between the billed rate for their medical services and the amount paid by their health insurance plan. Now, under the No Surprises Act, health insurance companies, healthcare plans, and providers resolve billing disputes through a statutorily mandated independent dispute resolution system. The parties in this action, the plaintiff air ambulance companies and defendant Health Care Service Corporation, did just that after plaintiffs provided services to insured patients. HCSC has failed to pay the awards determined by the certified independent dispute resolution handler. Plaintiffs filed this action seeking to require HCSC to pay them the award. Plaintiffs assert three causes of action. First, they bring a claim for violation of the No Surprises Act. Second, plaintiffs assert an ERISA claim for improperly denied benefits. Third, plaintiffs bring a claim for either unjust enrichment or, in the alternative, quantum meruit. HCSC moved to dismiss all three claims. Its motion was granted, with prejudice, in this decision. To begin, the court concluded that there is no private right of action to judicially enforce dispute resolution awards under the No Surprises Act. The court held that to establish an implied private right of action plaintiffs need to demonstrate that the Act creates both a right and a remedy. “While Plaintiffs present compelling arguments that the [Act] created a right, they fail to identify any ‘statutory intent’ to create a remedy to enforce that right.” The court concluded that the Act does not contemplate a procedural judicial mechanism enabling the providers to enforce their rights and instead the language of the No Surprises Act “almost entirely forbid[s] judicial review of [independent dispute resolution] decisions strongly suggest[ing] that Congress did not intend to confer Plaintiffs a cause of action to enforce [these] awards.” To the court it was notable that Congress decided to distinguish No Surprises Act language from language in the Federal Arbitration Act (FAA), by incorporating some sections of the FAA into the No Surprises Act, but not its judicial award confirmation procedures. “If Congress intended to create a procedural mechanism under the NSA, it simply could have incorporated one more section from the FAA, yet Congress did not do so. The Court interprets this omission in the NSA to mean that Congress did not intend to create a remedy under the NSA.” Accordingly, the court dismissed the claim asserted under the No Surprises Act. Next, the court addressed plaintiffs’ ERISA claim. Here, it identified a problem with standing. Under ERISA, healthcare providers with valid assignments of benefits, like plaintiffs, are standing in the shoes of the covered plan participants and beneficiaries. However, under the No Surprises Act patients can no longer be “balance billed” for the amount in dispute. To the court, because the No Surprises Act eliminates beneficiaries’ financial responsibility, emergency healthcare providers inheriting the beneficiaries’ rights likewise have no financial responsibility, and thus they have not suffered a harm under ERISA. “The [Health Care Service Corporation] beneficiaries suffered no concrete injury from [their insurance provider] allegedly failing to pay [the dispute resolution] awards to Plaintiffs. As the Court discussed above, the passage of the NSA means that patients…are no longer financially responsible for balanced billing,” so the beneficiaries would not incur a financial injury even if their health plan does not pay their provider. Arguments to the contrary were rejected by the court. It viewed all the ways patients might be hurt by such a holding as speculative and hypothetical. Thus, the court dismissed the ERISA cause of action for lack of standing. Finally, the court dismissed the unjust enrichment/quantum meruit claim because the air ambulances did not provide the insurance company “with any direct benefit.” The court ended its decision by clarifying that all of the claims were dismissed without leave to amend because the defects in the complaint are incurable which makes amendment futile. If courts elsewhere in the country adopt similar holdings, insurance companies may quickly take advantage of the situation as they would be financially incentivized to stop honoring No Surprises Act dispute awards. It’s hard to think this was the result Congress intended. Either way, Your ERISA Watch will keep our eyes peeled for future developments, and what we see, you’ll hear about.

Severance Benefit Claims

Second Circuit

Fromer v. Public Serv. Enterprise Grp., No. 1:20-cv-963 (BKS/CFH), 2024 WL 2784276 (N.D.N.Y. May. 30, 2024) (Judge Brenda K. Sannes). Plaintiff Howard Fromer worked for Public Service Enterprise Group Incorporated for eighteen years as director of market policy in Albany, New York. In April of 2020 Mr. Fromer was informed that his position was being eliminated. At the same time he was offered a new position as strategy manager, in the same pay grade as his old job. However, this new position was not located in Albany. Mr. Fromer believed it would require communing more than fifty miles from his current location. Accordingly, he declined the offer. Mr. Fromer then applied for severance benefits under the PSEG Separation Allowance Plan for Non-Represented Employees. Pursuant to the terms of the plan an employee involuntarily terminated “where the only position offered to [him] within the Company…would require [the individual] to increase their one-way commuting distance by more than [fifty] miles” is entitled to separation pay. Mr. Fromer’s application, however, was denied. His employer reasoned that he was not entitled to benefits because his “reporting location [and commuting distance] would not change,” and he would “continue to work from home.” In this ERISA action, Mr. Fromer challenges his employer’s denial of severance benefits under the plan. The parties filed cross-motions for summary judgment. They agreed that the plan administrator was granted discretionary authority and therefore that the arbitrary and capricious standard applies. As an initial matter, the court declined to consider evidence outside the administrative record. Although the court agreed with Mr. Fromer that there is an inherent conflict of interest at play, it nevertheless found that he did not meet his burden of establishing good cause to expand evidence beyond the administrative record because he “provided no reason why he was unable to submit the extra-administrative record evidence during the administrative process.” The court then turned to the merits of the parties’ positions. Ultimately, it found that both sides had a reasonable interpretation of the word “commute.” Presented with two decent and rational readings of the plan language, the court was left to favor defendants’ view given the highly deferential standard of review. Therefore, the court upheld the denial based on the commonly understood definition of “commute” to mean “one’s daily travel to and from one’s regular workplace.” Summary judgment was accordingly granted in favor of defendants.

Subrogation/Reimbursement Claims

Ninth Circuit

AGC Int’l Union of Operating Eng’rs Local 701 Health & Welfare Tr. Fund v. Beeler, No. 2:24-cv-00725-JHC, 2024 WL 2701690 (W.D. Wash. May. 24, 2024) (Judge John H. Chun). A self-funded health insurance plan, the AGC-International Union of Operating Engineers Local 701 Health and Welfare Trust Fund, brings this action seeking reimbursement of payments it made on a covered family’s medical claims. The health trust moved for ex parte entry of a temporary restraining order (TRO) requiring defendants not to dispose of or otherwise dissipate the third-party settlement proceeds it contends are subject to subrogation. Plaintiff’s TRO motion was granted in this decision. The court held: (1) the health trust is likely to succeed on the merits of its claim for reimbursement; (2) defendants are likely to dissipate the settlement proceeds if no action is taken; which (3) may cause the plan to suffer irreparable harm absent entry of a TRO; (4) the balance of equities weighs in favor of granting the motion because it will maintain the status quo; and (5) granting the TRO advances the public interest as it will ensure the stability of ERISA plans.

The Trustees of the N.Y. St. Nurses Ass’n Pension Plan v. White Oak Glob. Advisors, LLC, No. 22-1783, __ F.4th __, 2024 WL 2280632 (2d Cir. May 21, 2024) (Before Circuit Judges Lynch and Park, and District Judge Jessica G.L. Clarke)

Arbitration has been a hot topic in ERISA litigation lately. Just three weeks ago we covered the decision in Cedeno v. Sasson, in which the Second Circuit used the “effective vindication” doctrine to void an arbitration provision in a case asserting claims under ERISA Section 502(a)(2). As we discussed, the ThirdSeventh, and Tenth Circuits have also invalidated similar arbitration provisions based on that doctrine.

However, these rulings all focused on whether a case can be forced into arbitration at the outset. What about cases that have already been through arbitration? What power do federal courts have over petitions regarding the decisions made there?

This question is tricky because the Federal Arbitration Act, although it expansively regulates the arbitration process, does not by itself confer subject matter jurisdiction on the federal courts. As a result, up until recently, most courts, including the Second Circuit, have used a “look-through” approach to determine whether they have jurisdiction over post-arbitration disputes.

Under this approach, the court examines an arbitration award to see if it resolves federal claims, and if it does, the court can exercise federal question jurisdiction over a petition regarding that award. This approach had the benefit of being the same one used to determine whether arbitration can be compelled in the first place, thus creating a “consistent jurisdictional principle.”

However, the Supreme Court upended this approach two years ago in Badgerow v. Walters. In Badgerow, the court rejected the “look-through” approach and ruled that federal jurisdiction exists over a post-arbitration petition only if the “face of the application” shows that federal law entitles the applicant to relief. The practical effect of this ruling is that many post-arbitration petitions must now be adjudicated in state court.

But what does this mean for ERISA cases? The Second Circuit addressed this question in this week’s notable decision. Plaintiff, Trustees of New York State Nurses Association Pension Plan, filed a demand for arbitration after it became concerned that defendant White Oak Global Advisors, LLC, which served as the investment manager for the Plan, had breached its fiduciary duties to the Plan and was violating the investment management agreement (“IMA”) between it and the Plan.

After a week-long hearing, the arbitrator largely found in the Trustees’ favor, and the Trustees filed a petition to confirm the award in federal court. White Oak cross-petitioned to vacate the award in part, but did not raise any jurisdictional issues. The district court modified the award slightly but otherwise granted the Trustees’ petition. The court also awarded the Trustees attorney’s fees pursuant to its inherent authority based on White Oak’s “meritless, ‘entirely unpersuasive,’ and even ‘borderline sanctionable’ positions throughout this litigation.”

After judgment was entered, the Supreme Court issued its ruling in Badgerow. Relying on Badgerow, White Oak filed a motion to vacate the judgment, contending that the district court lacked jurisdiction to confirm the arbitration award. The court rejected this argument and White Oak appealed.

On appeal, the Second Circuit acknowledged that the legal landscape had shifted because of Badgerow, and that the district court’s original basis for jurisdiction – that the underlying ERISA claims were federal in nature – was no longer valid.

However, this was not the death-knell for jurisdiction. The Second Circuit interpreted Badgerow to mean that “subject matter jurisdiction over a petition to confirm an award turns on the law governing the contractual rights created by the arbitration agreement, rather than the laws asserted in the underlying claims or the non-existent ‘freestanding’ rights created solely by the award.” Because contracts are typically governed by state law, this means that post-arbitration petitions should generally end up in state court.

However, as the Second Circuit explained, ERISA is different. The court noted that “the arbitration agreement that the Trustees seek to enforce is not some separate instrument governed by an entirely different body of state contract law, but rather is an integral part of the documents governing the Plan and is governed by ERISA.” Furthermore, “ERISA imposed a fiduciary obligation upon White Oak to comply with the IMA’s arbitration terms and the FAA review for which it provided.”

The Second Circuit also observed that ERISA has an expansive preemption clause and thus it “preempts state law as to the enforcement of arbitration agreements between core ERISA entities contained within plan documents or terms.” The court acknowledged that this “express preemption” does not by itself grant federal jurisdiction. In order “for jurisdiction to be proper, the petition to confirm must state a cause of action contained within ERISA or another federal statute.”

The Second Circuit found such a cause of action in ERISA Section 502(a)(3), which allows for equitable relief. The court noted that the Trustees’ petition sought “‘disgorgement’ of management fees, return of the Plan’s assets held by White Oak, and ‘[r]emoval of White Oak as the plan’s fiduciary and investment manager.’” The court held that these were classic equitable remedies, even if some of the relief sought was monetary in nature. The court further held that even if the central dispute concerned an arbitration agreement, it was effectively a suit to enforce an ERISA-governed trust, and such suits have always been equitable in nature, especially where “the Trustee’s petition seeks enforcement of an arbitral award that itself grants equitable relief.”

Moreover, even if the Trustees had “styled their petition as a contract action controlled by state law,” it could not evade federal jurisdiction because of ERISA’s “complete preemption” doctrine. The Trustees’ petition “easily satisfied” the Davila complete preemption test because “[t]he Trustees are a party authorized to sue under § 502(a)(3), and the petition to enforce the arbitration agreement, through confirmation of the award, is an action to enforce a plan term or document.” In short, because the Trustees’ petition “is cognizable as an ERISA § 502(a)(3) action,” state law could not apply and federal question jurisdiction was inescapable.

As a result, the Second Circuit determined that the rule announced by the Supreme Court in Badgerow did not divest it of jurisdiction over the matter, and it turned to the merits. White Oak did not challenge the arbitrator’s underlying factual findings or legal conclusions. Instead, it argued that the district court “exceeded its confirmation authority by entering judgment in favor of the Trustees on (1) prejudgment interest on the disgorgement of its assets, (2) the return of the ‘Day One fees,’ and (3) ‘profits.’”

The court affirmed the ruling that the Trustees were entitled to prejudgment interest on the disgorgement of assets, finding that the arbitrator’s final award was unambiguous on this issue and the intent of the arbitrator was clear. The court further affirmed the ruling that such interest began accruing as of the date the IMA expired.

The court also affirmed the district court’s ruling that White Oak was required to disgorge its “Day One fees.” These were retroactive fees White Oak imposed when the Plan joined White Oak’s investment fund, and which the arbitrator concluded were not permitted by the IMA. The Second Circuit ruled that the arbitrator’s award clearly required White Oak to return these fees and the district court did not err by enforcing it.

However, White Oak prevailed on its third issue regarding the disgorgement of “profits.” The Second Circuit agreed that “the Award’s failure to identify or calculate ‘profits’ renders this item of relief sufficiently ambiguous that we cannot discern how to enforce it. Accordingly, the Award must be remanded to the arbitrator for clarification.” The court ruled that the calculations involved were not “ministerial” and involved “numerous legal and factual questions” that the court could not resolve without further guidance.

Finally, the court agreed with White Oak that the district court’s award of attorney’s fees to the Trustees, which was based on White Oak’s litigation conduct, should be reversed. The Second Circuit ruled that the district court’s findings supporting that award lacked sufficient detail, and thus remanded for the court to “make more specific findings.”

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

Breach of Fiduciary Duty

Sixth Circuit

Moore v. Humana Inc., No. 3:21-cv-232-RGJ, 2024 WL 2402118 (W.D. Ky. May. 23, 2024) (Judge Rebecca Grady Jennings). In this class action participants of the Humana Retirement Savings Plan allege Humana Inc. and the Humana Retirement Plans Committee breached their duties under ERISA by failing to leverage plan assets and participant size to ensure that recordkeeping fees paid were prudent and reasonable. During a relatively short period of time –just seven years – the Plan grew tremendously. Its assets nearly doubled from $3.5 billion to roughly $6.5 billion and the number of participants increased by nearly 10,000 individuals. However, the yearly participant fee paid for recordkeeping services decreased in that same time period only minimally, from $37 per participant down to $28. Plaintiffs aver that $9 was not appropriate given the plan’s growth, and that a reasonable per-participant recordkeeping fee range is between $12 to $20 for a plan of this size. Defendants do not dispute that they never attempted to negotiate with their recordkeeper, Charles Schwab, for lower fees during this period as plaintiffs allege they should have. However, defendants contend that they nevertheless engaged in a prudent process by conducting a request for proposal wherein they considered more than 125 vendors, and by retaining a third-party consultant to perform annual benchmarking for the plan. Moreover, defendants argue that the fees themselves were reasonable throughout the class period. The parties each moved to exclude the other’s expert’s testimony, and also cross-moved for summary judgment. The court in this decision granted defendants’ motion to exclude as well as their motion for summary judgment, and denied plaintiffs’ motion to exclude and their summary judgment motion. The decision began with plaintiffs’ motion to exclude defendants’ expert, Pete Swisher. Somewhat surprisingly, Mr. Swisher holds a B.A. in Linguistics from the University of Virginia. However, he is a certified financial planner who has spent his career in the retirement plan industry advising on both ERISA and non-ERISA governed plans. Mr. Swisher was retained to evaluate defendants’ processes overseeing and monitoring the recordkeeping services and plan fees, and to speak to the reasonableness of the fees paid by the plan during the class period. Mr. Swisher opines that Humana implemented a prudent process to monitor recordkeeping fees and services and that the fees remained reasonable throughout. Plaintiffs challenged what they viewed as Mr. Swisher’s circular reasoning. They wrote, “Swisher is essentially saying, ‘The fiduciary process was prudent because fees were reasonable and the fees were reasonable because the fiduciaries followed a prudent process.’” The court saw it differently. It stated, “that is the nature of the inquiry – a prudent process involving competitive bidding (the RFPs), coupled with the Roland Criss reports and an independent comparison to NEPC surveys which Swisher used to show median recordkeeping fees, could form a basis for concluding that the fees were reasonable.” Essentially, the court said it viewed plaintiffs’ motion to exclude Mr. Swisher’s testimony as arguments amounting to attacks on his conclusions rather than challenges to his foundation or methodology. Accordingly, plaintiffs’ motion to exclude was denied. Next, the court analyzed defendants’ motion to exclude plaintiffs’ expert, Veronica Bray. Ms. Bray holds a B.S. in Business Administration from the University of North Carolina and, like Mr. Swisher, has spent her career in the retirement plan industry assisting plan sponsors. Ms. Bray was retained to provide expert analysis and opinions on defendants’ actions and to answer the question of whether those actions were consistent with the standards of care practiced by a prudent fiduciary acting in the best interest of the plan. Her opinion was that they were not, and that they resulted in unreasonably high plan fees. Defendants challenged Ms. Bray’s comparisons, methodology, and the reliability of her opinion in addressing the dispositive question of this case. While the court stated it is “true that Bray is generally qualified by knowledge and experience in the field, with over two decades of professional involvement within the industry in various roles,” and “Bray’s testimony may even help the trier of fact understand how the Plan’s fees generally compare to smaller plans, such as the ones she cites in her report,” the court nevertheless concluded that “Bray’s opinion applies no reliable methodology to the pertinent question in this litigation: whether Defendants’ process was prudent and whether recordkeeping fees were ultimately ‘excessive relative to the services rendered’… Bray’s method – essentially, reasoning by inference that, because the six smaller plans were able to achieve a fee in the $12-$20 range, it follows that Humana should have also been able to negotiate for fees in that range – is not a reliable basis for concluding the fees were unreasonably high.” The court therefore excluded Ms. Bray’s testimony. Left with one expert’s version of events, the court evaluated the cross-motions for summary judgment and granted judgment in favor of defendants. The court concluded that defendants used a prudent process “consistent with industry practice” and the recordkeeping fees were not excessive relative to the services rendered.

Ninth Circuit

Bracalente v. Cisco Sys., No. 22-cv-04417-EJD, 2024 WL 2274523 (N.D. Cal. May. 20, 2024) (Judge Edward J. Davila). In this putative class action participants of the Cisco 401(k) plan have sued Cisco and the plan’s committee for breaches of fiduciary duties under ERISA. Plaintiffs allege defendants breached their duties of prudence and monitoring by mismanaging the plan and retaining a suite of underperforming BlackRock LifePath Index Target Date Funds as the plan’s designated default investment options. According to the complaint, Cisco and the committee failed to engage in a prudent monitoring process to oversee the funds and to ensure that they were suitable in terms of their performance and returns. By retaining these funds, plaintiffs claim that the participants lost out on millions of dollars in retirement savings’ growth. They say that part of the alleged failure to monitor the funds stems from the committee’s failure to adhere to the plan’s investment policy statement (IPS) and also from the committee’s use of custom benchmarks. Plaintiffs allege that these bespoke benchmarks amounted to little more than “a reflection of the TDF portfolio,” which they argue is “akin to looking in a mirror.” Instead, plaintiffs contend that the fiduciaries should have compared the BlackRock Target Date Funds to other available options and had they done so they would have observed the obvious and unacceptable underperformance of the investments. Additionally, plaintiffs aver that the committee improperly characterized the challenged funds as “passive” rather than “actively” managed. Pursuant to the IPS, passively managed funds were subject to less scrutiny. “For passive investments, the Committee was required to ensure only that those investments ‘meet’ the results of their benchmark; for actively managed investments the IPS required that the Committee ensure the investments ‘exceed’ the results of the relevant benchmark or appropriate peer group.” Finally, plaintiffs alleged that the meeting minutes “reflect no discussion of the performance of the BlackRock TDFs, even though the BlackRock TDFs were obviously the Plan’s most important investment.” Taken together, plaintiffs were confident their allegations demonstrate a plausible inference that defendants fell short of their fiduciary obligations. Unfortunately for the participants, the court did not agree and in this decision granted defendants’ motion to dismiss the second amended complaint. The court parsed through each bit of circumstantial evidence individually. It held that neither the process allegations nor the underperformance allegations plausibly establish claims of imprudence and failure to monitor co-fiduciaries. The court was not convinced that defendants’ use of custom benchmarks was inappropriate. Nor was it persuaded that, to the extent the target date funds were mischaracterized as passive, defendants were violating the IPS. As for plaintiffs’ chosen comparators, the court concluded that all four were inapposite, two because they were composed of actively managed funds, and two because they employed a “through retirement” rather than “to retirement” glide path strategy. Left with allegations of underperformance alone, the court determined these allegations were based on hindsight, and under relevant case law therefore do not plausibly state claims for breaches of fiduciary duties under ERISA. Accordingly, the court once again concluded that the complaint did not meet its pleading burden and therefore granted the motion to dismiss. However, the court’s dismissal under Rule 12(b)(6) was granted with leave to amend as it believes plaintiffs may be able to cure the identified deficiencies and shore up their allegations.

ERISA Preemption

Ninth Circuit

Morton v. Rocky Mountain Hosp. & Med. Serv., No. 2:23-cv-01320-GMN-DJA, 2024 WL 2329129 (D. Nev. May. 21, 2024) (Judge Gloria M. Navarro). Plaintiff Michael Morton submitted a request for authorization to his medical insurance provider, Anthem Blue Cross and Blue Shield, for total disc arthroplasty neck surgery. Anthem denied the preauthorization request, concluding the surgery was not medically necessary. Despite the preauthorization denial, Mr. Morton went ahead with the surgery, and was left with medical expenses of more than $50,000. Mr. Morton sued Anthem in state court asserting six state law claims. Anthem removed the action to the federal system, insisting the claims are preempted by ERISA. It then moved to dismiss. In this order the court agreed with Anthem that the state law claims are preempted by federal law and granted the motion to dismiss them. As an initial matter, the court held that ERISA governs the health plan, as it is sponsored by Mr. Morton’s employer and the employer contributes to the premium payments. Thus, the court stated that the plan meets ERISA’s statutory definition of an “employee welfare benefit plan.” Having established that the plan is governed by ERISA, the court turned to assessing the impact of ERISA preemption on the state law claims. It began with complete preemption. The court concluded that Mr. Morton is a plan participant with a colorable claim for benefits under Section 502 of ERISA, and that his claims of breach of contract and contractual breach of implied covenant of good faith and fair dealing do not implicate any independent legal duty as they are based solely on Anthem’s failure to provide insurance coverage benefits under the plan. Therefore, the court found claims one and two completely preempted. It also concluded that plaintiff’s third claim, tortious breach of the implied covenant of good faith and fair dealing, was likewise based on Anthem’s failure to provide insurance benefits and pay for the surgery, and that it too was completely preempted by ERISA. Further, the court found Mr. Morton’s state law breach of fiduciary duty claim preempted, as alleged breaches of fiduciary duties “while administering the benefit plan is conduct covered by ERISA.” With regard to the claim under Nevada’s Unfair Claims Practices Act, the court relied on Nevada Supreme Court case law which has found that ERISA preempts a private right of action for violation of the act when, as here, it is based on the denial of plan benefits. Finally, the court determined that Mr. Morton’s last claim for declaratory relief “is not independent of his claim for benefits under his plan and is therefore preempted.” In sum, the court wrote that Mr. Morton’s “claims do not simply have a connection to the Group Health Plan; they are entirely based on Anthem’s denial of benefits under the Plan.” Accordingly, all six state law causes of action were dismissed. However, the court provided Mr. Morton leave to amend his complaint to replead his causes of action under ERISA.

Ninth Circuit

Alaska v. Express Scripts, Inc., No. 3:23-cv-00233-JMK, 2024 WL 2321210 (D. Alaska May 21, 2024) (Judge Joshua M. Kindred). The State of Alaska initiated this action on behalf of its citizens against Express Scripts, Inc. and its affiliated companies for fueling the opioid epidemic in Alaska in Express Scripts’ capacity as a Pharmacy Benefits Manager (PBM), mail-order pharmacy, and research provider. Originally, the State filed its suit in Alaska Superior Court and brought two state law causes of action, a claim for public nuisance and a claim for violations of the Alaska Unfair Trade Practices and Consumer Protection Act. Express Scripts removed the action to federal court. Following removal, the State moved to remand the case. However, it has since had a change of heart, and subsequently moved for leave to amend its complaint to add a federal claim for violation of the Racketeer-Influenced and Corrupt Organization Act. In a separate order this week, unrelated to ERISA, the court granted the State’s motion to amend its complaint. In this decision, the court ruled on Express Scripts’ motion to dismiss the two state law causes of action as preempted by Medicare Part D and ERISA. The court ruled that the State’s claims are partially preempted by Medicare Part D, but not ERISA. It stated that the claims are not dependent on the ERISA-governed plans, because existence of the plans is not critical in establishing or determining liability. The state’s causes of action, the court ruled, “would persist with or without ERISA-covered plans as they would proceed with respect to Express Scripts’ formularies adopted by plans offered by government or religious entities, Medicare and Medicaid plans, and individual plans offered by insurers, such as ACA exchange plans.” The court found the particulars of this lawsuit comparable to Rutledge v. Pharmaceutical Care Management Association, wherein the Supreme Court decided that an Arkansas law regulating reimbursement prices for pharmaceuticals and prescription drug coverage “does not act immediately and exclusively upon ERISA plans because it applies to PBMs whether or not they manage an ERISA plan.” Moreover, the court held that the state law claims do not have an impermissible “connection with” ERISA plans as “they do not dictate any particular scheme of substantive coverage,” even though they “target Express Scripts’ plan administration.” If the State of Alaska succeeds on its claims, the court concluded that injunctive relief barring Express Scripts from engaging in further deceptive acts, practices, and conduct would not require it to structure its formularies and benefit plans in any particular way. “That is because the State’s CPA and public nuisance claims are not merely based on the structure of the formularies, but on the manner in which Express Scripts arrived at their structure: allegedly by ignoring evidence that suggested the need for utilization management due to its financial agreements with manufacturers and desire for profits.” Accordingly, the court determined that ERISA does not preempt either state law cause of action. However, as noted, the court dismissed the public nuisance and consumer protection act claims insofar as they implicate Medicare Part D plans.

Pension Benefit Claims

Second Circuit

Estate of Hichez-Zapata v. Emerecia, No. 21 CIVIL 4261 (PKC), 2024 WL 2304704 (S.D.N.Y. May. 22, 2024) (Judge P. Kevin Castel). The children of Confessor Hichez-Zapata filed this action seeking to recover proceeds of their late father’s ERISA-governed annuity fund, which they allege were wrongfully distributed to his ex-wife. Plaintiffs sued the ex-wife, as well as the pension benefit plan, the IUOE Local Annuity Fund. The Plan moved for summary judgment on the claim asserted against it, a claim for breach of fiduciary duty. The court granted the Plan’s motion in this order. First, the court concluded that none of the children had statutory standing to sue under ERISA as no plaintiff was designated as a beneficiary. “Plaintiffs’ contention that Decedent intentionally listed his descendants as beneficiaries in one form but mistakenly omitted them in a second is unsupported conjecture and speculation that would not permit a reasonable trier of fact to conclude that he intended to list plaintiffs as beneficiaries of the annuity account.” Moreover, the court wrote, “[e]ven if Decedent erred in his paperwork, however, his subjective intention would not permit a trier of fact to find that plaintiffs are Plan beneficiaries.” Therefore, the court concluded that none of the individual plaintiffs had standing to bring a claim against the plan under ERISA. Additionally, the court held that plaintiffs provided no evidence, despite repeated court orders to do so, that plaintiff Robert Hichez is the lawful estate administrator. As Mr. Hichez made no showing that he may properly act on behalf of the estate, the estate’s claim against the plan was dismissed by the court. Issues of standing aside, the court took the time to explain that plaintiffs’ claim of fiduciary breach would also fail on the merits. They argued that the Plan breached its duties by failing to investigate Mr. Hichez-Zapata’s marital status and by failing to clarify his choice of designated beneficiaries across different plan documents. The court stated simply, “[n]either the text of ERISA nor the Plan’s governing documents create such a duty. Therefore, in addition to plaintiffs’ lack of statutory standing and inability to proceed on behalf of the Estate, summary judgment is separately granted to the Plan because plaintiffs have not identified an actionable duty breached by the Plan.” As the Plan distributed proceeds in accordance with the written beneficiary designation, the court concluded that it had not erred under ERISA. Its motion for summary judgment was accordingly granted.

Mombrun v. The N.Y. Hotel Pension Fund, No. 22-CV-4970 (PGG) (JLC), 2024 WL 2494577 (S.D.N.Y. May 23, 2024) (Magistrate Judge James L. Cott). Pro se plaintiff Marie S. Mombrun sued the New York Hotel Trades Council and the Hotel Association of New York City, Inc. Pension Fund to challenge pension benefit calculations. Ms. Mombrun alleges that she is entitled to additional pension benefits based on hours she worked in 2019 and 2020. Ms. Mombrun contends that she earned more pension credits than defendants calculated she accrued and that she is entitled to higher per credit benefits following the plan’s 2019 amendment. Further, Ms. Mombrun claims that she was entitled to begin receiving benefits two years earlier, beginning in 2020, because she had applied for Social Security Disability benefits and was therefore eligible for disability pension benefits. Accordingly, Ms. Mombrun asserts that she is entitled to back pay as well as higher monthly payments. Defendants maintain that their benefit calculations were correct and moved for summary judgment. In this report and recommendation, the magistrate judge recommended defendants’ summary judgment motion be granted. As an initial matter, the magistrate agreed with defendants that their decision was entitled to deference as the plan documents grant the Trustees discretionary authority. Under deferential review, the magistrate could not say that the decision to deny additional pension benefits was arbitrary and capricious, particularly in light of the fact that Ms. Mombrun does not dispute that she did not work the requisite 500 hours to receive pension credit in 2019 and 2020, nor even in those years combined, or any year thereafter. Therefore, the magistrate agreed with defendants’ calculations of benefits under the terms of the plan and concluded that Ms. Mombrun is not entitled to either more credits or higher rates per credit. Finally, the magistrate stated that Ms. Mombrun was not entitled to an earlier pension start date because she needed to work a combined 500 hours between 2019 and 2021 to be eligible for a disability pension. “Because defendants’ denial of Mombrun’s benefits application is supported by the plain text of the Plan documents, the denial was not arbitrary and capricious.” For these reasons, the magistrate recommended defendants’ motion for summary judgment be granted and Ms. Mombrun’s complaint be dismissed.

Tenth Circuit

Crawford v. The Guar. State Bank & Tr. Co., No. 22-2542-JAR-GEB, 2024 WL 2700668 (D. Kan. May. 23, 2024) (Judge Julie A. Robinson). Plaintiff David Crawford sued his former employer, The Guaranty State Bank & Trust Company, and the board of directors of the Executive Salary Continuation Plan for the bank under ERISA to challenge defendants’ decision to deny him benefits under the plan. Mr. Crawford worked for the bank for three decades. His work involved cattle financing and issuing agricultural loans. By the end of his tenure at the bank Mr. Crawford was wrapped up in legal trouble involving the Kansas Bureau of Investigation (KBI) and was criminally charged with two felonies for impairing a security interest and making false statements. Mr. Crawford resigned from his position as senior vice president in 2020. One year later the KBI investigation concluded and the bank was provided with the agency’s report. After receiving the KBI report, defendants determined that Mr. Crawford was ineligible for benefits under the plan pursuant to the plan’s “for cause” forfeiture exclusion for actions constituting gross negligence or neglect, willful violation of law, and breach of fiduciary duties. Mr. Crawford challenges the termination of his benefits in this action under Section 502(a)(1)(B). Both parties moved for judgment in their favor. In addition, defendants moved to strike extra-record evidence. The motion to strike was mostly denied and judgment was entered in favor of Mr. Crawford under arbitrary and capricious review. The court found that most of the exhibits challenged by defendants were either part of the administrative record or relevant to issues of defendants’ conflict of interest. However, the court did strike Mr. Crawford’s testimony and also certain documents which it agreed with defendants were properly withheld pursuant to the work product doctrine because they were communications with lawyers in anticipation of litigation. The court then addressed the merits of the board’s decision. Mr. Crawford argued that the decision to terminate his benefits was an abuse of discretion because “(1) it incorrectly interpreted the Plan when it determined that it could terminate [his] benefits based on a retroactive determination that grounds ‘for cause’ existed at the time he voluntarily resigned; (2) the initial termination decision and review of the denials contained several procedural irregularities; (3) the Board’s conflict of interest; and (4) the decision was not based on substantial evidence.” First, the court disagreed with Mr. Crawford that defendants’ interpretation of the plan language was unreasonable. The court stated that a reasonable person would read the forfeiture exclusion to apply in this instance. Second, the court found that the initial adverse determination letter complied with ERISA’s statutory requirements. Nevertheless, the court agreed with Mr. Crawford that he was denied a full and fair review during his internal appeal. The court concluded that the board ignored evidence, failed to conduct a sufficient independent investigation of the underlying facts, and failed to provide Mr. Crawford with all of the documents it considered during the appeal process. Moreover, it found these failures consequential and likely the result of defendants’ conflict of interest including their potential desire “to shift the blame for the cattle deaths and bank losses to Plaintiff.” Accordingly, the court determined that the decision to terminate benefits was arbitrary and capricious and not supported by substantial evidence. Judgment was therefore entered in favor of Mr. Crawford. The decision ended with the court concluding that remanding to defendants to conduct a full and fair review was the proper remedy because defendants’ failure to do so the first time interfered with the court’s ability to review the record for reasonableness. Finally, Mr. Crawford’s requests for interest and attorneys’ fees were determined to be premature and denied without prejudice.

Plan Status

Fifth Circuit

Chocheles v. Heller, No. 24-647, 2024 WL 2350709 (E.D. La. May. 2, 2024) (Judge Eldon E. Fallon). This action is a life insurance dispute between a widow and her late husband’s life insurance carrier, Unum Life Insurance Company of America. Plaintiff Josephine Chocheles is the surviving wife of Christopher Thomas Chocheles. Mr. Chocheles was a partner at the law firm Sher Garner Cahill Richter Klein & Hilbert, LLC. The firm committed to guarantee life insurance benefits amounting to $1 million to its partners. The firm contracted with Unum to provide this coverage, but Unum declined and instead only provided the firm with guaranteed per-partner benefits of $750,000 with no need for any evidence of insurability. The law firm accepted this proposal and then contracted separately through another insurer to provide the additional $250,000 coverage per partner, so that each partner would still receive the promised $1 million. After her husband’s death, Ms. Chocheles submitted a claim for the full $750,000 in benefits from Unum. Unum tendered only $500,000. Unum maintained that additional evidence of insurability was required for the full $750,000 coverage. Ms. Chocheles filed suit in Louisiana state court alleging violations of state law to challenge Unum’s decision, seeking damages in the amount of $250,000 and prejudgment interest. Unum removed the action on ERISA preemption grounds. In response Ms. Chocheles moved to remand. She argued that removal was improper, as it did not satisfy the Federal Rules of Civil Procedure, and because the policy is not governed by ERISA. The court disagreed on both matters and thus denied the motion to remand. First, it concluded that defendants properly and timely removed the action in compliance with federal rules. Second, the court found that the plan was not exempt from ERISA as it was a group policy that covered employees of the law firm as well as its partners. “The group policy at issue here includes three classes…where one class comprises of partners (owners) and another includes staff of the law firm (employees)…The group policy is a single package bearing one single policy number…bargained and paid for as a package by the firm.” Accordingly, the court determined that the plan is governed by ERISA, thus making removal proper. Ms. Chocheles’s motion to remand was therefore denied. 

Pleading Issues & Procedure

Third Circuit

Seibert v. Nokia of Am. Corp., No. 21-20478, 2024 WL 2316551 (D.N.J. May. 22, 2024) (Judge Jamel K. Semper). Participants of the Nokia Savings/401(k) Plan have sued the plan sponsor, Nokia of America Corporation, as well as the Board of Directors of Nokia, and the Nokia 401(k) Committee, for breaches of ERISA’s fiduciary duties of prudence and monitoring. Plaintiffs allege that defendants breached these duties by failing to control plan costs and fees. On August 8, 2023, the court granted in part and denied in part a motion to dismiss by defendants. It held that plaintiffs adequately pled their recordkeeping and administrative cost claims, but that their claims premised on imprudent expense ratios were insufficiently pled because the complaint lacked meaningful benchmarks for comparison. (Your ERISA Watch covered the decision in our August 16, 2023 edition.) The court’s dismissal of the imprudence and monitoring claims premised on the cost of the challenged funds was without prejudice. Accordingly, plaintiffs amended their complaint to address the court’s identified deficiencies. They bolstered support for the expense ratio allegations by including two target date funds in the same Morningstar categories as the challenged funds for comparison and to demonstrate the plan’s underperformance. Now, defendants are once again moving to dismiss the complaint for failure to state a claim. To begin, the court stressed that it would not disturb its previous holding that the complaint sufficiently states claims of imprudence and failure to monitor co-fiduciaries based on allegations that defendants subjected the plan to excessive recordkeeping and administrative costs. The court therefore limited its review here to scrutinizing the previously dismissed claims as they relate to allegations that defendants failed to adequately review the plan’s investment portfolio to ensure that each option was prudent in terms of cost. Thanks to plaintiffs’ amendments, the court held that it can now plausibly infer that defendants’ process was flawed. “The Court accepts Plaintiffs’ new support for their claim[s] at the pleading stage and determines that the FAC sufficiently alleges that Defendants failed to adequately review the Plan’s investment portfolio with due care to ensure the prudence of the cost of each option.” Therefore, the court denied the motion to dismiss both the breach of the duty of prudence claim and the derivative failure to monitor claim.

Remedies

Sixth Circuit

Canter v. Alkermes Blue Care Elect Preferred Provider Plan, No. 1:17-cv-399, 2024 WL 2698405 (S.D. Ohio May. 24, 2024) (Judge Douglas R. Cole). This litigation arose after plaintiff Keith Canter’s claim for spinal surgery was denied by his healthcare plan, the Alkermes Blue Care Elect Preferred Provider Plan, and its administrator, Blue Cross Blue Shield of Massachusetts, Inc. In a previous decision the court concluded that defendants’ “reliance on an incomplete administrative record and failure to accord sufficient weight to all relevant medical factors listed in the Plan violated Canter’s procedural rights under the Plan.” The court remanded to Blue Cross for reconsideration of its decision, and held off on awarding any damages or monetary relief. (Your ERISA Watch covered this decision in our March 30, 2022 edition.) On remand, Blue Cross changed its decision and awarded Mr. Canter benefits, although not the full amount of the cost of his surgery. Believing he is entitled to more – the full cost of the surgery, plus interest, and attorneys’ fees and costs – Mr. Canter moved to reopen the case. In this order the court agreed with Mr. Canter that he is entitled to benefits equaling the full cost of his surgery plus interest to represent make-whole relief and “receive full satisfaction for his ERISA claim.” Furthermore, the court awarded Mr. Canter attorneys’ fees and costs under ERISA’s fee provision. The court stated that Mr. Canter “is entitled to prejudgment interest on his claim in this action under standard common law principles.” It clarified that because Blue Cross provided coverage for the surgery by awarding Mr. Canter benefits and paying him directly, “the legal effect of Canter’s entitlement to a sum certain amount of benefits is that he equally enjoys a right to prejudgment interest of the delay in payment of those funds.” The court determined that an appropriate award of interest would be interest calculated using the blended prejudgment interest rate pursuant to 28 U.S.C. § 1961. Agreeing with Mr. Canter that he is entitled to the full cost of his surgery plus the prejudgment interest, the court awarded Mr. Canter $100,289.01 in total, to be offset by the amount already paid on remand by Blue Cross. As for attorneys’ fees, the court found that Mr. Canter is entitled to a fee award as he had success on the merits and because a fee award is supported by the five factors laid out by the Sixth Circuit. Moreover, the court found the proposed $490 hourly rate of counsel reasonable and in line with ERISA practitioners in the area. The court also declined to reduce Mr. Canter’s counsel’s number of hours. Accordingly, the court awarded Mr. Canter the full requested amount of $204,771 in fees. His request for reimbursement of $622.75 was also granted in full, as the court found it “quite a reasonable amount after five years of litigation.” Judgment was thus entered in these amounts and the case was terminated.

Venue

Seventh Circuit

Lobodocky v. Medxcel Facilities Management, LLC, No. 1:23-cv-00767-JPH-MG, 2024 WL 2320006 (S.D. Ind. May. 22, 2024) (Judge James Patrick Hanlon). Plaintiff Vicki Lobodocky filed duplicate lawsuits, one in the Eastern District of Missouri, and this action in the Southern District of Indiana, alleging she was wrongfully denied life insurance proceeds from her husband’s ERISA-governed policy following his death. Ms. Lobodocky has sued her husband’s former employer, Medxcel, and the joint plan administrators, Prudential Insurance Company of America and Ascension Health Alliance. The three defendants moved to dismiss the action for improper venue, or in the alternative to transfer venue to the Eastern District of Missouri pursuant to the plan’s forum selection clause. In this decision the court denied the motion to dismiss for improper venue under Rule 12(b)(3), but granted the motion to transfer. As a preliminary matter, the court held that defendants failed to show that the Southern District of Indiana was a wrong or improper venue. Nevertheless, the court agreed with defendants that the plan’s forum selection clause was broad, unambiguous, applicable, and controlling. It found that Ms. Lobodocky failed to demonstrate that this was that “most unusual case” where the interest of justice could not be served by holding the parties to the terms of the clause, particularly as Ms. Lobodocky is already litigating the same matter in the Eastern District of Missouri. Therefore, the court granted the motion to transfer venue, and relocated the action to the Eastern District of Missouri.