Mator v. Wesco Distribution, Inc., No. 22-2552, __ F. 4th __, 2024 WL 2198120 (3d Cir. May. 16, 2024) (Before Circuit Judges Hardiman, Porter, and Fisher)

When the Supreme Court decided Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), federal courts were suddenly tasked with the unenviable job of deciding when a complaint sufficiently passes the threshold from “conceivable” to “plausible.” Perhaps nowhere have courts struggled with this calculus more than in the context of suits challenging the fees paid by ERISA-governed 401(k) and other defined contribution plans. The Third Circuit’s decision in this case, reversing a district court’s 12(b)(6) dismissal of such a suit, is a perfect example of the difficult and “context-specific” analysis in which courts must engage.

Nancy and Robert Mator, two participants in a 401(k) plan, brought a putative class action lawsuit against their employer, Wesco Distribution, which was both the plan sponsor and administrator. The complaint stated two counts, one for breach of fiduciary duty in allowing the plan to pay excessive fees to the plan’s recordkeeper, Wells Fargo, and one for failure to monitor the other plan fiduciaries with respect to these fees.

The plan paid these fees both through direct asset-based fees deducted from each participant’s account, and through indirect fees in the form of revenue sharing with plan investments. The Mators alleged that together these two types of fees added up to a shocking $154 average per participant, approximately four times what the Mators alleged was a reasonable per-participant fee based on a number of different comparators, including what Wells Fargo itself charged a number of other plans, as well as the amount received by other service providers such as Fidelity and Vanguard from similarly-sized plans. With respect to the direct and indirect fees, the Mators alleged that all defined contribution plans buy essentially the same bundle of services of approximately the same quality, and they bolstered this assertion by alleging that when the plan switched to Fidelity as the recordkeeper in 2020, the plan received the same services for $54 per participant.

The Mators also alleged that Wesco caused the plan to pay too much by choosing expensive share classes for certain mutual fund investments, rather than available less expensive share classes of the same mutual funds. This led to more money going to Wells Fargo in revenue sharing on top of the already too-high direct fees Wells Fargo was already receiving through the asset-based fees.

Finally, the Mators alleged that Wesco failed to monitor the other individuals responsible for administering the plan and the decision-making processes that led the plan to overpay the fees.

The district court granted three motions to dismiss filed by Wesco, finding each iteration of the Mators’ complaint to be conclusory and insufficiently specific. After the third dismissal, the Mators appealed.

The Third Circuit saw things differently. In concluding that the Mators had stated a claim, the court relied heavily on an earlier Third Circuit decision, Sweda v. University of Pa., 923 F.3d 320 (3d Cir. 2019), in which the court likewise reversed the dismissal of an excessive fee case. (Judge D. Michael Fisher, perhaps not coincidentally, wrote for the court in both this case and Sweda.) While the fees per participant paid by the University of Pennsylvania in Sweda were allegedly higher ($220-$250 per participant), the allegations in the Mators’ case were more specific, according to the court, because the Mators, unlike Sweda, “made additional allegations about the amount of fees paid by comparator plans.”

Although the district court criticized the Mators for failing to make an “apples to apples” comparison, pointing to differences in service codes employed by the various plans, the Third Circuit concluded that the Mators’ allegation that all plans received similar services rendered their claim plausible despite the coding differences. Similarly, although Wesco criticized some of the comparators, the Third Circuit concluded that even winnowing out the more questionable comparators “would not leave the complaint bereft of allegations that help make a fiduciary breach plausible.” Furthermore, although Wesco offered a different calculation of the fees paid by the comparator plans, the court was unpersuaded that Wesco’s alternative calculation was so obvious or natural as to make the allegations of misconduct implausible. And the court was persuaded that the Mators had sufficiently stated that a cheaper comparable service was available through their allegation that the plan obtained just that when it switched service providers in 2020.   

With respect to the mutual fund shares, the court agreed with Wesco that “as the Mators have pled their fiduciary breach claim, the excessiveness of the recordkeeping fees and the impropriety of offering retail-class shares are intertwined” because the fees associated with the higher share classes were paid to Wells Fargo as indirect fees. But this did not help Wesco’s argument. “Because the Mators plausibly allege the fees were too high overall, it is therefore also plausible that it was a fiduciary breach to cause participants to pay indirect fees by offering mutual fund shares subject to revenue sharing.”

Moreover, although the Mators conceded that plan fiduciaries might prudently choose more expensive share classes with revenue sharing features in order to offset plan recordkeeping expenses, they argued that the plan in this case did not benefit from such an arrangement because they alleged that the plan was already paying too much in fees. On this basis the court concluded that “the Mators have alleged a fiduciary breach based on the Plan’s offerings of retail-class mutual fund shares,” although the court expressly “decline[d] to articulate a bright-line rule that a plan administrator breaches its fiduciary duty merely by offering retail-class investment shares.”

Finally, the Third Circuit reversed the district court’s dismissal of the failure to monitor claim, which the parties acknowledged was derivative of the fiduciary breach claim that the court had just determined passed muster.

In the end, the Third Circuit found that the district court’s “criticisms, although partly valid, only nibble around the edges of the complaint,” and thus “what remains plausibly states a claim.”       

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

Attorneys’ Fees

Sixth Circuit

The W. & S. Life Ins. Co. Benefits Comm. v. Jenkins, No. 1:23-cv-609, 2024 WL 2132416 (S.D. Ohio May. 13, 2024) (Judge Douglas R. Cole). The Western and Southern Life Insurance Benefits Committee (“W&S”) filed this interpleader action to resolve competing claims for proceeds on a $118,700 life insurance policy. W&S filed a motion (1) to deposit the proceeds with the court, (2) requesting an award of attorneys’ fees and costs, and (3) to be dismissed as a party in this action. The competing beneficiaries do not contest that W&S properly filed an interpleader action and should be allowed to deposit the proceeds and be dismissed with prejudice from the suit. The court agreed. However, the beneficiary defendants opposed the insurance company’s motion for attorneys’ fees and costs. In its order the court ruled that Sixth Circuit case law supports awarding reasonable attorneys’ fees and costs to insurance companies in ERISA interpleader actions. It disagreed with defendants’ position that fee awards to insurance companies filing interpleader actions creates perverse incentives and resolving conflicting claims for proceeds is simply a part of an insurer’s cost of doing business. On the contrary, the court held that an interpleading party is entitled to recover reasonable costs and fees when it does not claim an interest in the funds, concedes liability, and deposits the funds into the court. Accordingly, the court was satisfied that an award here was merited. However, it did not find W&S’s requested fee award of $32,465.73 in fees and costs reasonable. The court significantly reduced the requested amount on the grounds that the suit is in its nascency, is not complex, and W&S is an insurance company used to interpleader matters. Accordingly, the court found that an attorney fee award of $5,750 was reasonable. As for costs, the court awarded W&S the full requested amount of $2,790.38, as one of the defendants was in England and serving her was unusually costly. W&S was therefore ordered to deposit the disputed funds, plus interest, and minus the $8,540.38 the court awarded it in this order.

Breach of Fiduciary Duty

Fourth Circuit

Sealy v. Old Dominion Freight Line, Inc., No. 1:23-CV-819, 2024 WL 2212905 (M.D.N.C. May. 16, 2024) (Judge Thomas D. Schroeder). Three participants of the Old Dominion Freight Line, Inc. 401(k) Plan have sued the plan’s fiduciaries on behalf of a putative class alleging the fiduciaries are violating ERISA and causing millions of dollars in losses to the plan through excessive and unreasonable fees. Plaintiffs allege the plan is overpaying direct recordkeeping fees, indirect revenue sharing fees, float fees, and investment management fees. Defendants disagree with the allegations and moved to dismiss the complaint for failure to state a claim. Defendants first argued that the proposed class period extends beyond ERISA’s six-year statute of limitations for fiduciary breach claims. The court, however, saw “no reason to dismiss any claim in part at this time on [time limitation grounds] because the class, if certified, would not extend beyond the proper limitations period.” Defendants also attached several exhibits to their motion to dismiss. The court took judicial notice of the Form 5500s, which it viewed as necessarily incorporated into plaintiffs’ complaint, but declined to take judicial notice of Rule 408(b)(2) disclosures and the master services agreements between Old Dominion and its third-party recordkeepers. Although the court was receptive to defendants’ challenges to the complaint, and took time to caution plaintiffs against “any effort to game the system,” the court nevertheless recognized that it must accept plaintiffs’ allegations as true at this preliminary stage. Favoring plaintiffs’ allegations, the court was satisfied that they stated their fiduciary breach claims based on the fees and share classes. Plaintiffs compared Old Dominion’s plan with four other plans which had much lower per-participant fees. At this stage in litigation, the court was persuaded that these other plans were meaningful benchmarks and demonstrated the plausibility of plaintiffs’ allegations that defendants are breaching their fiduciary duties. The court also accepted plaintiffs’ share class allegations of nine investments in the plan. The court expressed that it could not accept defendants’ view that “expense ratios are per se reasonable simply because other cases have found higher expense ratios to be reasonable.” Accordingly, the court held that defendants did not demonstrate that they are entitled to dismissal of plaintiffs’ claims and therefore denied the motion to dismiss.

Class Actions

Seventh Circuit

Urlaub v. Citgo Petroleum Corp., No. 21 C 4133, 2024 WL 2209538 (N.D. Ill. May. 16, 2024) (Judge Matthew F. Kennelly). Plaintiffs Leslie Urlaub, Mark Pellegrini, and Mark Ferry commenced this putative class action against their former employer, Citgo Petroleum Corporation, its two defined benefit pension plans, and the fiduciaries of the plans, alleging defendants violated several provisions of ERISA by calculating joint and survivor annuity benefits using out-of-date mortality assumptions based on 1970s-era mortality tables. Plaintiffs moved to certify a class of over 1,700 individual participants and beneficiaries of the plans who are receiving a joint and survivor annuity. Plaintiffs allege that the total underpayments for the class members is at least $31,713,141. In this order the court provisionally granted the motion to certify the class subject to certain amendments outlined in the decision. To begin, the court ordered that a breach of fiduciary duty subclass be created for members who were issued checks less than six years before the date of this suit was filed whose claims are not time-barred under ERISA’s statute of limitations. The court clarified that plaintiffs Urlaub and Ferry, but not Pellegrini, will be representatives of this subclass. Additionally, the court eliminated 26 individuals from the proposed class whose benefits were not calculated using an eight-percent interest rate and the 1971 mortality table, and instead had joint and survivor annuity benefits calculated using “Tabular Factors.” The court agreed with defendants that these 26 people were not properly within the class and therefore ordered amendment of the class definition to exclude them. The court further excluded three individuals from the proposed class who received a “Subsisted Pre-Retirement Survivor Annuity.” However, after eliminating these 29 individuals, the class size was only whittled down slightly and still encompasses 1,744 members. It was with regard to this revised class that the court evaluated the requirements of Rule 23(a) and (b)(1). Starting with Rule 23(a), the court concluded that the class is sufficiently numerous; that defendants’ single course of conduct is common to all class members; that the named plaintiffs are typical of absent class members as they suffered the same financial harm in the form of lower payments; and that the named plaintiffs and their counsel are adequate representatives to act in the interest of the class. Simply put, the court expressed that the dispute at the heart of this case is whether the single life annuity to joint and survivor annuity conversion factor was within the reasonable range for all class members. Answering this question, the court stated, can and should be done on a class-wide basis. Finally, the court concluded that certification under Rule 23(b)(1) was appropriate because prosecuting separate actions would create a risk of inconsistent and varying adjudications creating potentially incompatible standards of conduct for the defendants. For these reasons, the court provisionally granted plaintiffs’ motion for class certification and directed the parties to propose amended class and subclass definitions consistent with this order.

Disability Benefit Claims

Fourth Circuit

Aisenberg v. Reliance Standard Life Ins. Co., No. CIVIL 1:22-cv-125 (DJN), 2024 WL 2154739 (E.D. Va. May. 14, 2024) (Judge David J. Novak). Over two years ago plaintiff Michael Aisenberg applied for long-term disability benefits after major open-heart surgery rendered him unable to continue working as an attorney. Reliance Standard Life Insurance Company determined that Mr. Aisenberg was not entitled to benefits and denied his claim. Mr. Aisenberg challenged that decision in court. Ultimately, the court found Reliance Standard’s decision arbitrary and capricious. It determined that the insurance company abused its discretion by failing to assess the risk of future cardiovascular harm. Accordingly, the court overturned the denial and remanded to Reliance Standard to reconsider in light of its ruling. On remand, Reliance once again determined that Mr. Aisenberg was not entitled to long-term disability benefits under the plan. Mr. Aisenberg appealed to the court for a second time. The court concluded that Reliance Standard again abused its discretion, and this time ordered it to pay Mr. Aisenberg benefits. Reliance Standard began paying benefits, but determined that it could offset monthly benefit amounts by Mr. Aisenberg’s earned-income Social Security benefits. Mr. Aisenberg disputes this conclusion. He believes that earned-income Social Security benefits do not “result” from his long-term disability and therefore cannot be offset against his monthly payments under the terms of the plan. Accordingly, Mr. Aisenberg filed a motion to determine sum certain. As a preliminary matter, the court resolved the parties’ dispute over exhaustion. Mr. Aisenberg argued that exhaustion does not pose a barrier to the court ruling on the parties’ dispute because the court has jurisdiction to adjudicate disputes related to benefit assessments. The court agreed, and stated that exhaustion would serve no purpose here. The court “therefore declines to require that Plaintiff fully exhaust his internal remedies as to the question of whether Defendant has abused its discretion in interpreting the terms of its Plan related to the benefits offset.” As for the merits of the dispute, the court held that earned-income Social Security benefits do not constitute “other income” under the plain language of the plan. “Defendant’s Plan is unambiguous; it does not permit offsetting Plaintiff’s Social Security benefits, as they result from his earned income, rather than his disability, and Defendant’s plan permits offsetting only those Social Security benefits ‘resulting from the same Total Disability for which a Monthly Benefit is payable.” Reliance Standard has in fact litigated this interpretation of the same language in federal court before, and was told “that when its Plan’s language created a relationship between Social Security benefits and disability benefits, that language must be given interpretive force.” Accordingly, the court determined that Reliance Standard abused its discretion, for a third time in this matter, and ordered it to pay Mr. Aisenberg benefits without the offset.

ERISA Preemption

Seventh Circuit

The Regents of the Univ. of Cal. v. Health Care Serv. Corp., No. 22 C 6960, 2024 WL 2209595 (N.D. Ill. May. 14, 2024) (Judge Lashonda A. Hunt). A healthcare provider, the UCLA Health System, sued defendant Health Care Service Corporation d.b.a. Blue Cross and Blue Shield of Texas in state court for breach of contract and quantum meruit seeking payment of $78,737.20 for medical treatment it provided to three individuals with health insurance plans administered by defendant. To date, defendant has not paid anything. UCLA Health maintains that it is entitled to payment in this amount under the terms of a written contract between it and Anthem Blue Cross. Defendant removed the case to federal court on the basis that the two state law claims are preempted by ERISA. UCLA Health moved to remand its lawsuit to state court. In this decision the court granted the motion to remand. It held that neither prong of the Davila preemption test was satisfied, and thus the claims are not completely preempted by ERISA. The court determined that UCLA Health is not asserting rights for benefits under the ERISA plans. Rather, it explained that UCLA Health brings state law claims independently as a healthcare provider, not as an assignee of benefits under any plan. The court held that UCLA Health’s claims are based on an implied-in-fact contract and the parties’ conduct and interactions which “are independent from any duties that arise under the patients’ ERISA Plans. Indeed, UCLA Health does not contest HCSC’s denial of coverage. Rather, UCLA Health ‘is bringing its own independent claims, and these claims are simply not claims to ‘enforce the rights under the terms of the plan.’’” Therefore, the court concluded that ERISA does not convert UCLA Health’s state law claims into federal ones, and so granted the motion to remand the matter back to state court.

Ninth Circuit

California Brain Inst. v. United Healthcare Servs., No. 2:23-cv-06071-ODW (RAOx), 2024 WL 2190983 (C.D. Cal. May. 15, 2024) (Judge Otis D. Wright, II). Plaintiff California Brain Institute provided medical treatments to two patients insured under healthcare plans administered by defendant United Healthcare Services, Inc. First, California Brain Institute provided medical services to Patient RH. It submitted bills to United for these treatments. United paid the submitted claims for reimbursement, but later claimed that they were overpaid. Accordingly, when California Brain Institute submitted bills for a different patient, Patient MV, United kept the funds to offset them for the mistaken overpayments it made for Patient RH’s separate and entirely unrelated medical services. In this action, California Brain Institute seeks to recover the amounts of the unpaid medical bills from United. It asserts four causes of action: three common law causes of action in its own individual capacity, and one cause of action for recovery of benefits under ERISA Section 502(a)(1)(B) as Patient RH’s assignee. United moved to dismiss the three state law claims. United argued that these claims are conflict preempted under ERISA Section 514(a). The court agreed, and granted the motion to dismiss the common law claims with leave to amend. The court found that the three claims California Brain Institute asserted in an individual capacity are all premised on the existence of the ERISA plan and that it would have no claim to the funds it seeks from United “without the ERISA Plan’s coverage of ‘eligible expenses.’” In addition, the court noted that the overpayment recovery provision is also part of the two ERISA plans, and resolution of the dispute requires interpreting and analyzing the plans. “Accordingly, MV’s ERISA Plan will necessarily play a ‘critical factor in establishing’ United’s liability for [plaintiff’s] claims, which are therefore preempted under § 514(a)’s ‘reference to’ test.” The court further held that the individual state law claims were preempted under the “connection with” test as it viewed these claims as pursuing an alternative enforcement mechanism for benefits due under ERISA-regulated plans. Thus, because the court found the complaint explicitly alleges that the provider and United did not have any separate contract and fails to allege any independent representation made by United to pay benefits, the court determined that California Brain Institute’s “claims are essentially claims for wrongfully withheld benefits.” The three state law claims were accordingly dismissed.

Fiscu v. UKG Inc., No. 3:23-cv-01240-AN, 2024 WL 2153537 (D. Or. May. 13, 2024) (Judge Adrienne Nelson). Plaintiff Ovidiu Fiscu became ill in the fall of 2021 and took extended leave from his employment at UKG Inc. In February 2022, Mr. Fiscu applied for benefits under UKG’s supplemental long-term disability plan (“SLTD plan”). His request for benefits was denied. In response, Mr. Fiscu commenced a lawsuit in state court, alleging state law claims. UKG removed the action to federal court and subsequently moved to dismiss for failure to state a claim, arguing the state law claims are preempted under ERISA. The court agreed with UKG that the claims are preempted and thus granted the motion to dismiss, with leave to amend, in this order. First, the court construed the SLTD plan as an ERISA-governed plan. It concluded that Mr. Fiscu did not show that the SLTD plan satisfies all four requirements of ERISA’s “safe harbor” provision. Specifically, the court noted that Mr. Fiscu did not address whether UKG endorsed the program and whether UKG receives no consideration for the program. Accordingly, the court considered the plan to be an ERISA plan and therefore progressed to analyzing whether the state law claims are preempted by ERISA. It began by evaluating whether the claims are completely preempted under the two-prong Davila test. As to the first prong, the court found that Mr. Fiscu is a participant in the plan with “a colorable claim for vested benefits,” and his “complaint appears to seek benefits under an ERISA plan and to clarify his rights under an ERISA plan.” Thus, the court held that prong one of the Davila test was satisfied. Further, the court determined that Mr. Fiscu’s breach of contract and declaratory judgment claims do not arise independently of the ERISA plan and its terms, and that they are therefore completely preempted. However, Mr. Fiscu’s negligence claim was not found by the court to be completely preempted by ERISA, as the “legal implications of [UKG’s] alleged misrepresentation and negligent actions would exist whether or not the SLTD plan was governed by ERISA.” Nevertheless, the court found that the negligence claim was preempted by Section 514 of ERISA because the claim “would not exist but for the fact that UKG allegedly denied plaintiff benefits.” Accordingly, the court agreed with UKG that ERISA governs this action and Mr. Fiscu cannot sustain his state law claims. The court ended its decision by granting Mr. Fiscu leave to amend his complaint to plead causes of action under ERISA, or to plead sufficient facts to establish that the SLTD plan is not governed by ERISA.

Sagebrush LLC v. Cigna Health & Life Ins. Co., No. 24-00353-CJC (JDEx), 2024 WL 2152458 (C.D. Cal. May. 13, 2024) (Judge Cormac J. Carney). A mental health and substance abuse treatment center, plaintiff Sagebrush LLC, sued Cigna Health and Life Insurance Company and Cigna Healthcare of California, Inc. in California state court for failing to properly reimburse it for treatment it provided to 24 patients insured under Cigna healthcare plans. Sagebrush seeks payment of $7,267,347.06 under the following state law causes of action: violation of California’s unfair competition law, breach of implied contract, unjust enrichment, quantum meruit, and accounts stated. The Cigna defendants removed the action to federal court. Defendants maintain that the state law claims are preempted by ERISA. Sagebrush disagrees. It moved to remand its action back to state court. In this decision the court agreed with Cigna on the issue of preemption. It held that Sagebrush is a provider with assigned benefits for at least one of the patients, meaning it has standing to sue for benefits under ERISA. Moreover, at heart, the court determined that the claims in this action “in effect, seek benefits that are owed under an ERISA plan.” Finally, the court evaluated whether there was an independent legal duty implicated by defendants’ actions. Cigna argued that at least the unfair competition law is completely preempted by ERISA because it is entirely dependent on the existence and terms of the ERISA plans. Once again, the court agreed. It found that plaintiff’s claim seeks reimbursement for medically necessary services at rates tied directly to the ERISA-regulated benefit plans. Because ERISA completely preempts at least one of Sagebrush’s state law claims, the court held that removal was appropriate and therefore denied the motion to remand.

Life Insurance & AD&D Benefit Claims

Ninth Circuit

Wilcox v. Dearborn Ins. Co., No. 23-55484, __ F. App’x __, 2024 WL 2130598 (9th Cir. May 13, 2024) (Before Circuit Judges Tallman, Forrest, and Bumatay). Plaintiff-appellant Kevin Wilcox sued Dearborn Insurance Company under ERISA Section 502(a)(1)(B) seeking to recover waiver-of-premium life insurance benefits provided to disabled plan participants under his policy. Following a trial, the district court entered judgment in favor of Dearborn. Mr. Wilcox appealed the unfavorable ruling to the Ninth Circuit. Reviewing the district court’s legal conclusions de novo and factual findings for clear error, the court of appeals affirmed in this short unpublished decision. The Ninth Circuit held that the lower court had not erred by concluding that “in the absence of ongoing symptoms, the evidence presented by Wilcox was insufficient to show that he could not work in any occupation.” The appeals court disagreed with Mr. Wilcox that the district court had improperly required him to demonstrate “persistent symptomatology” to establish an inability to work in any occupation. Rather, the Ninth Circuit viewed the district court’s conclusion as based on a plausible and reasonable reading of the medical records. Additionally, the court of appeals rejected Mr. Wilcox’s argument that the district court improperly considered reasons for denial that Dearborn itself did not provide during its administrative appeal process. It stated that Dearborn provided a clear and specific reason for its denial to “ensure meaningful review,” and that the district court appropriately examined only Dearborn’s rationales for its denial in its review. The district court’s decision was accordingly affirmed.

Medical Benefit Claims

Ninth Circuit

Lawrence B. v. Anthem Blue Cross Life & Health Ins. Co., No. 23-cv-06529-JSC, 2024 WL 2112866 (N.D. Cal. May. 8, 2024) (Judge Jacqueline Scott Corley). Plaintiff Lawrence B. paid out of pocket for his daughter’s treatment at a residential treatment facility after defendant Anthem Blue Cross Life & Health Insurance Company denied the family’s claim for coverage by concluding the care was not medically necessary under the terms of the ERISA-governed healthcare plan. In this action, plaintiff seeks to recover those benefits. He asserts two claims, a claim for plan benefits under Section 502(a)(1)(B), and a claim for equitable relief for breach of fiduciary duty under Section 502(a)(3). Anthem moved to dismiss the second cause of action for breach of fiduciary duty. It argued that plaintiff cannot sustain both claims, insisting that the two counts are duplicative because they are both premised on allegations Anthem failed to follow plan terms. In addition, Anthem challenged the sufficiency of the claim on the grounds that “Plaintiff fails to plead any fact which would allow this Court to reasonably infer the MCG clinical guidelines fail to align with the Plan’s definition of medical necessity.” In this decision, the court ruled that the complaint currently fails to state a fiduciary breach claim against Anthem and therefore granted the motion to dismiss. It concluded that “the complaint is devoid of facts to support” its allegations that MCG Behavioral Health Guidelines used by defendant are inconsistent with the plan’s definition of “medically necessary” treatment. Thus, the court stated that it cannot currently infer that Anthem’s reliance on the MCG clinical guidelines to determine medical necessity for mental health benefits violates plan terms and is more restrictive than generally accepted standards of medical care. The court therefore agreed with Anthem that plaintiff failed to state a fiduciary breach claim, and accordingly granted the motion to dismiss the second cause of action. However, dismissal was granted with leave to amend, as the court broadly rejected Anthem’s argument that plaintiff cannot sustain claims one and two. The court concluded it was premature to determine whether plaintiff’s Section 502(a)(3) claims for relief are duplicative of his claim for benefits at this stage.

Pension Benefit Claims

Second Circuit

Grosso v. AT&T Pension Benefit Plan, No. 22-1701-cv, __ F. App’x __, 2024 WL 2180316 (2d Cir. May. 15, 2024) (Before Circuit Judges Leval, Merriam, and Kahn). Plaintiffs-appellants Vincent C. Grosso and Patricia M. Wing were each eligible to begin receiving early retirement benefits at the age of 55. However, neither filed a written request for benefits until 2017, when Mr. Grosso was 62 and Ms. Wing was 59. Along with their elections to receive early retirement benefits, plaintiffs also sought to receive retroactive payments dating back to when each was age 55. The AT&T Pension Benefit Plan denied their claims for retroactive pension benefits. The Plan concluded that under the governing plan terms Mr. Grosso and Ms. Wing had to have filed written applications for early retirement benefits at age 55 to receive the benefits at that time. Because they waited, they were not entitled to retroactive benefits. This litigation followed the denials of the retroactive pension benefits. The district court ultimately granted summary judgment to AT&T under abuse of discretion review. It held that defendants reasonably interpreted the plan to require participants to file an election to become entitled to the early retirement benefits. Mr. Grosso and Ms. Wing appealed the district court’s denial of their motion for summary judgment to the Second Circuit. In this order the court of appeals affirmed. The Second Circuit agreed with the district court that the denials were reasonable and supported by substantial evidence “and that summary judgment in favor of defendants was therefore appropriate.” Finding the denials for retroactive early retirement benefits “at minimum, not arbitrary and capricious,” the appeals court affirmed the grant of summary judgment to the AT&T defendants on plaintiffs’ claim for benefits under Section 502(a)(1)(B).

Statute of Limitations

Tenth Circuit

J.H. v. Anthem Blue Cross Life & Health Ins. Co., No. 2:23-CV-00460-TS-DBP, 2024 WL 2243316 (D. Utah May. 16, 2024) (Judge Ted Stewart). Plaintiff A.H., a beneficiary in an insured ERISA-governed healthcare plan, was treated at a residential treatment center from July 1, 2020 to June 4, 2021. Anthem Blue Cross Life and Health Insurance Company denied the claim for benefits for this treatment, determining that it was not medically necessary. The family appealed the adverse decision, and on August 12, 2021, Anthem affirmed its denial of benefits and informed the family that it was a final adverse determination. In its letter, Anthem informed the family that under their plan they had one year to bring a civil lawsuit under ERISA Section 502(a) to challenge the decision in court. Before bringing a lawsuit, the family submitted an external review request for the denied claim. On October 21, 2021, the external review agency upheld Anthem’s denial of coverage. The family would eventually file this action, but not until July 17, 2023. Viewing this litigation as untimely, Anthem referred to the plan terms and moved to dismiss the complaint. Relying on the unambiguous limitation period in the plan which states: “If you bring a civil action under Section 502(a) of ERISA, you must bring it within one year of the grievance or appeal decision,” the court concluded that plaintiffs needed to file their complaint no later than October 31, 2022 to comply with the Plan’s one year statute of limitations. Because they filed their complaint almost a whole year after this date, the court agreed with Anthem that the complaint was untimely and barred. Thus, the court granted the motion to dismiss.

Bafford v. Admin. Comm. of the Northrop Grumman Pension Plan, No. 22-55634, __ F. 4th __, 2024 WL 2067884 (9th Cir. May 9, 2024) (Before Circuit Judges Christen, Desai, and Johnstone)

For the second time in close to as many years, the Ninth Circuit reversed the district court’s dismissal of this action brought by two participants and one beneficiary of the Northrop Grumman Pension Plan, an ERISA-governed defined benefit plan, against the administrator of that plan.

In this decision, the Ninth Circuit recognized the harm that is done to employees planning their retirement when they receive inaccurate pension information. As the Ninth Circuit put it, “[u]nlike a participant who does not receive any pension benefit statement and therefore does not know their retirement benefit, a participant who receives a significantly inaccurate statement may be affirmatively misled into believing that their pension will be greater than it is and make inadvisable decisions as a result.”

The plaintiffs allege they did not automatically receive benefit statements from the plan. Instead, they requested such statements from the plan’s administrative committee while they were working at Northrop in order to plan their retirements.

However, the responses they received grossly overstated their benefits. The mistake apparently resulted from the erroneous treatment of plaintiffs’ salaries during their two periods of employment with Northrop, the second of which was for a company that was eventually acquired by Northrop. The retirement benefit statements plaintiffs received used salary data from their second period of employment following the acquisition, leading to monthly benefit calculations that were more than twice the amount to which plaintiffs were actually entitled.

Unfortunately, plaintiffs only learned of these miscalculations in 2017 after they had already retired and begun receiving their pensions at the much higher rates. In this action, plaintiffs are seeking to redress the committee’s violations of ERISA’s disclosure requirements.

The Ninth Circuit addressed four issues in resolving the appeal: (1) whether plaintiffs adequately alleged that the committee failed to send triennial pension benefit statements or annual notices of the availability of such statements under § 1025(a)(1)(B)(i); (2) whether allegations that the committee furnished inaccurate pension benefit statements state a cognizable cause of action under § 1025(a)(1)(B)(ii); (3) whether plaintiffs sufficiently alleged they made written requests for benefit statements; and (4) whether remedies are available for the committee’s alleged failure to provide pension benefit statements in compliance with ERISA.

First, the panel held that plaintiffs adequately alleged their claim under § 1025(a)(1)(B)(i). The court of appeals stated, “[T]his record does not establish that Plaintiffs received an SPD or Annual Funding Notice at least once each year that they were employed at Northrop and participating in the Plan… The record before us shows only that the Committee provided an SPD in 2014 and Annual Funding Notices in 2014, 2015, and 2016; Plaintiffs each worked for Northrop for over a decade after they returned to the company in 2002. At this stage of the litigation, we cannot conclude that the Committee satisfied § 1025(a)(3)(A).”

The Ninth Circuit then turned to the claim under § 1025(a)(1)(B)(ii), and adopted the logical proposition that ERISA requires accurate benefit statements. The appeals court concluded that the language of the statute requiring participants be furnished with statements informing them of their “total benefits accrued” under § 1025(a)(2)(A) has the same meaning as “accrued benefit” in 29 U.S.C. § 1002(23)(A), and therefore requires statements be accurate. The panel further held that this reading was consistent with the core purpose of ERISA to protect the interests of employees and their beneficiaries. This goal, the court wrote, “would be entirely frustrated if plan administrators could satisfy their disclosure duties by providing grossly inaccurate pension benefit statements.” Accordingly, the Ninth Circuit was satisfied that plaintiffs adequately alleged the committee violated § 1025(a)(1)(B)(ii) by not providing them with pension benefit statements in accordance with the plan’s formula and “grossly overstat[ing] their benefits.”

In the decision’s next section, the Ninth Circuit held that plaintiffs sufficiently alleged they made written requests for benefit statements. “The Committee’s argument that Plaintiffs did not make written requests because they ‘conveyed their requests via the telephone’ is not well taken,” the Ninth Circuit stated. Plaintiffs alleged that they diligently followed the directions of the SPD and Annual Funding Notices to input data electronically, thereby satisfying the statute’s requirement that participants make written requests for pension benefit statements. According to the court, this was sufficient to trigger the duty to produce the benefit statements.

In so ruling, the appeals court was unpersuaded by the committee’s contention that plaintiffs were not requesting statements, but only pension “estimates.” The Ninth Circuit held that the committee’s argument presented a factual dispute not appropriate for resolution on a motion to dismiss “because it requires making factual findings concerning the type of documents Plaintiffs requested, which is not possible on the present record.”

Finally, the decision closed with a discussion of remedies. The court rejected the committee’s argument that there were no remedies available for the alleged ERISA violations. To the contrary, the panel determined that daily statutory penalties under § 1132(c)(1), for failure to furnish documents under § 1025(a), is an available and appropriate remedy. Furthermore, this remedy does not require allegations of bad faith. The court was convinced, under the plain text of the statute, that a colorable claim alleging grossly inaccurate pension benefit statements “falls within the scope of ERISA’s penalty provision.” The Ninth Circuit, however, declined to address whether equitable remedies under § 1132 were available because the district court did not consider the issue below.

Accordingly, the Ninth Circuit reversed the district court’s dismissal of plaintiffs’ claims and remanded for further proceedings.

Plaintiffs are represented by Your ERISA Watch’s own co-editor, Elizabeth Hopkins, along with her colleague and partner Susan L. Meter of Kantor & Kantor LLP, and Teresa S. Renaker and Kirsten G. Scott of Renaker Scott LLP.

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

Breach of Fiduciary Duty

Sixth Circuit

Bonds v. Heeter, No. 23-12045, 2024 WL 2059721 (E.D. Mich. May. 8, 2024) (Judge George Caram Steeh). In this action a participant of an employee stock ownership plan, the Flat Rock Metal and Bar Processing Stock Ownership Plan (“the ESOP”), brings claims for breaches of fiduciary duties and prohibited transactions against the ESOP’s trustee and selling shareholders in connection with a 2020 transaction wherein the plan purchased one hundred percent of outstanding shares of SAC Ventures Inc. for $60 million. Plaintiff alleges the company was revalued one month later at $3,649,046, signaling that the plan grossly overpaid for its assets. Plaintiff contends that the $60 million figure was the result of unrealistic growth projections and comparisons. “The complaint alleges that the sale was financed by the sellers because they were unable to arrange for bank financing, which would have required due diligence to ensure that the stock was worth the price paid.” The complaint further alleges that the purchase price was not properly discounted to reflect that the selling shareholders retained control of the company. Defendants moved to dismiss the complaint. To begin, the court addressed standing. It held that allegations in the complaint that the plan overpaid for stock, injuring plan participants, satisfied the standing elements of injury in fact, causation, and redressability. The court disagreed with defendants’ proposition that the nature of a leveraged transaction inherently precludes a finding of injury. “Plaintiff makes no allegation about the equity value of the stock immediately after the transaction; rather, he contends that post-transaction valuations, along with flaws in the initial valuation methodology, raise an inference that the ESOP overpaid.” Having determined plaintiff has standing, the court turned to the merits of the prohibited transaction claims. It determined that “the face of the complaint does not conclusively demonstrate that [exemptions] appl[y],” and that it is not an ERISA plaintiff’s burden to plead the absence of exemptions to prohibited transactions. Accordingly, the court denied the motion to dismiss the prohibited transaction claims under Sections 406(a)(1)(A) and (B). However, the court did find the claim under Section 406(a)(1)(D) subject to dismissal, as subsection (D) requires a complaint to create a reasonable inference showing that the trustee had a “subjective intent” to benefit a party in interest by transferring plan assets under Sixth Circuit precedent. Next, the court analyzed the claims for breach of the fiduciary duties of prudence and loyalty. Plaintiff contends that the trustee breached these duties by failing to thoroughly investigate the company stock and was financially incentivized to please the selling shareholders, as ongoing fees and future business was tied to approving the ESOP transaction. “These allegations,” the court wrote, “are sufficient to state a claim for breach of the duties of loyalty and prudence.” The court also denied the motion to dismiss the knowing participation and co-fiduciary liability claims asserted against the selling shareholders. It agreed with plaintiff that the shareholders knew or should have known the true stock valuation as well as other relevant facts surrounding the allegedly prohibited transaction. For these reasons, the court held the complaint satisfied Rule 8 notice pleading and denied the motion to dismiss the claims asserted against the selling shareholders. Accordingly, with the narrow exception of the prohibited transaction claim under Section 406(a)(1)(D), the court denied the motion to dismiss and allowed the action to proceed.

Disability Benefit Claims

Seventh Circuit

Artz v. Hartford Life & Accident Ins. Co., No. 23-2269, __ F. 4th __, 2024 WL 1986000 (7th Cir. May. 6, 2024) (Before Circuit Judges Scudder, Jackson-Akiwumi, and Pryor). Plaintiff-appellant Donald Artz worked at an electric utility company for over two decades. In 2019 symptoms of his longstanding multiple sclerosis left him feeling unable to continue working the arduous 12-hour shifts of his job as an electric distribution controller. Mr. Artz therefore applied for short-term disability benefits, as well as disability benefits from the Social Security Administration. He was granted these benefits and stopped working. When his short-term disability benefits ended, Mr. Artz applied for long-term disability benefits under his ERISA-governed policy. The plan administrator, Hartford Life & Accident Insurance Company, denied the claim. It concluded that Mr. Artz was not totally disabled due to his fatigue and cognitive impairments to the point of being unable to perform one or more of the essential duties of his job. Mr. Artz challenged the denial through an internal appeal, and when that proved unsuccessful, in litigation. Ultimately, the district court ruled that Hartford had not abused its discretion in denying the claim. It concluded that Mr. Artz was placing too much emphasis on the duties of his specific position, i.e. the 12-hour shifts, rather than the essential duties of his job in the general workplace as required by the policy. In particular, the district court latched onto the fact that one of Mr. Artz’s treating neurologists opined that he could perform regular 8-hour-a-day 5-day-a-week work in his current condition. Hartford’s reviewing doctors agreed with the neurologist’s conclusion when they reviewed the medical records. Accordingly, the district court held that Harford’s reading of the medical records was reasonable and substantial evidence supported the benefits denial. Furthermore, the district court rejected Mr. Artz’s contention that approval of both short-term disability and Social Security Administration benefits entitled him to benefits under the long-term disability plan. Mr. Artz appealed the unfavorable ruling, but the Seventh Circuit affirmed in this decision. Given the arbitrary and capricious review standard, the court of appeals could not find evidence that the district court erred in concluding that the denial was reasonable. “Several physicians concluded that [Mr. Artz] did not present enough objective evidence to show ‘severity and frequency’ of symptoms ‘such that functional impairment was established.’ This evidentiary record leaves us no choice but to AFFIRM.”

Ninth Circuit

Kim v. The Guardian Life Ins. Co. of Am., No. 8:23-cv-01579-DOC-ADS, 2024 WL 2106240 (C.D. Cal. May. 9, 2024) (Judge David O. Carter). Plaintiff Jason Kim commenced this ERISA benefits action to challenge The Guardian Life Insurance Company of America’s adverse decision on his claim for long-term disability benefits. Mr. Kim was employed as an art director at Dreamhaven, Inc. when on January 4, 2021, he became symptomatic for COVID-19 and subsequently developed sudden and severe physical, cognitive, and mental health symptoms, including psychosis. Mr. Kim’s psychological symptoms became profound and escalated. As the court noted, while it is uncommon, the COVID-19 virus has been documented to cause psychosis, as well as a variety of other mental health problems. The onset of these symptoms was debilitating. “He started showing signs of altered cognition, affect, and behavior, including pacing all night.” A neurologist diagnosed Mr. Kim with tardive dyskinesia and tardive akathisia. By March 2021, Mr. Kim’s condition was so severe that he attempted suicide and spent two months hospitalized. It was in fact while Mr. Kim was in the hospital, on March 25, 2021, that he submitted his claim for long-term disability benefits. Guardian denied the claim, concluding that while Mr. Kim was disabled, his disability was caused by pre-existing conditions excluded under the policy. Guardian cited Mr. Kim’s medical history of depression, anxiety, and ADHD. The court disagreed and held that Mr. Kim’s pre-COVID-onset mental health conditions were minor and non-disabling. “The Record contains sufficient evidence to establish that Plaintiff’s condition had subsequently changed from common anxiety and depression to something far more severe and unconnected to his documented prior conditions.” Accordingly, the court found that the pre-existing condition exclusion did not apply. The court stated that Mr. Kim’s “minimal prior anxiety and depression were categorically different than the symptoms he suffered beginning in early 2021, such that any preexisting condition did not substantially contribute to his disability.” Moreover, the court concluded that Mr. Kim met the policy’s definition of total disability and that he was entitled to benefits under the plan. The court thus overturned Guardian’s decision and awarded benefits, pre-judgment interest, and attorneys’ fees and costs.

Medical Benefit Claims

Ninth Circuit

Craig H. v. Blue Cross of Idaho, No. 1:23-cv-00221-DCN, 2024 WL 1975507 (D. Idaho May. 2, 2024) (Judge David C. Nye). In this action a family seeks benefit payments for their son’s residential mental healthcare treatment. Plaintiffs asserted four causes of action against the plan sponsor, Micron Technology, Inc., and the plan administrator, Blue Cross of Idaho: (1) recovery of benefits; (2) failure to provide a full and fair review; (3) violation of the Mental Health Parity and Addiction Equity Act; and (4) a request for statutory penalties for failure to supply documents upon request. Defendants moved to dismiss all the claims except the first for plan benefits. As a preliminary matter, the court took judicial notice of the plan document, concluding it was incorporated by reference into the complaint. However, the court declined to consider emails defendants attached to their motion to dismiss. The decision then addressed the full and fair review claim asserted under Section 502(a)(1)(B). While the court disagreed with defendants that the family is foreclosed from bringing a separate cause of action for violation of a full and fair review of the benefit claims, it nevertheless concluded that the family could not sustain this cause of action as currently pled under Section 502(a)(1)(B) because the requested relief, recovery of benefits due, is duplicative of their first cause of action. Accordingly, the court granted the motion to dismiss count two. Nevertheless, the court recognized that plaintiffs may cure this deficiency through amendment, and therefore informed plaintiffs they may replead to request some kind of equitable relief under Section 502(a)(3). The court addressed the Parity Act claim next. It stated that it would not entertain defendants’ arguments about treatment limitations, non-quantitative treatment limitations, and medical necessity, as these issues required factual discussions inappropriate for consideration on a motion to dismiss. The court therefore only addressed defendants’ argument that the family lacks standing to bring its Parity Act claim because there is no nexus between plan terms and the stated reasons for denial. Because the family “clearly alleges that it was Defendants’ use of the medical necessity criteria that created the disparity between mental health requirements and requirements for other coverage,” the court ruled that plaintiffs presented a plausible cause of action that defendants violated the Parity Act. As a result, the count was not dismissed. Finally, the court declined to consider the statutory penalties claim at this juncture, as questions over whether defendants acted in compliance with ERISA’s disclosure requirements “are very fact driven.” Thus, the court denied the motion to dismiss count four. For these reasons, the motion to dismiss was granted in part and denied in part.

Pension Benefit Claims

Seventh Circuit

Urlaub v. Citgo Petroleum Corp., No. 21 C 4133, 2024 WL 2019958 (N.D. Ill. May. 6, 2024) (Judge Matthew F. Kennelly). Three participants of the CITGO Petroleum Corporation’s two defined benefit plans sued CITGO, the plans, and the Benefits Committee on behalf of a putative class of similarly situated individuals for violations of ERISA in connection with the plans’ use of the 1971 Mortality Table to calculate joint and survivor annuity benefits. Plaintiffs assert four causes of action centering on the use of this allegedly outdated table. Count one alleges that use of the table reduced their benefits to less than the actuarial equivalent value of single life annuity benefits in violation of Section 1055. Similarly, count two alleges that the use of the table reduced the value of joint annuities below that of similarly situated single life annuities in violation of Section 1054(c). Count three alleges defendants violated ERISA’s anti-forfeiture provision, Section 1053. Finally, count four alleges the Benefits Committee breached its fiduciary duties of loyalty and prudence by providing inaccurate information to class members and failing to prudently make benefit determinations. Defendants moved for summary judgment. In their motion, defendants argued that the claims are untimely, plaintiffs failed to exhaust available internal appeals processes prior to filing suit, and plaintiffs cannot sustain their claims. The court mostly disagreed. It began by addressing the timeliness of the claims. The parties agreed that the analogous four-year statute of limitation under Texas law applies to counts one through three asserted under ERISA Sections 1055, 1054, and 1053. However, the parties dispute when plaintiffs’ claims accrued and thus when the clock started. The court ruled that there is a genuine question of fact about whether the plaintiffs knew or should have known the relevant facts of their claims regarding the mortality table more than four years prior to suing. “The Court cannot say that defendants have shown that no reasonable factfinder could conclude that the packets were insufficient to appraise participants that their [joint and survivor annuity] benefits might be less than the actuarial equivalent of their hypothetical [single life annuity] benefits.” The court then scrutinized the breach of fiduciary duty claim under ERISA’s six-year statute of repose. It concluded that two of the named plaintiffs’ fiduciary breach claims were timely under the six-year statute, but the third plaintiff’s claim was not because he received his first benefit check seven years before the lawsuit commenced. The court rejected plaintiffs’ “continuing breach” theory that the Committee continues to underpay the plaintiffs monthly in repeated violation of their fiduciary duties under ERISA. The court stated this was an instance “where a single decision has lasting effects.” Moreover, the court noted that plaintiffs pointed to no steps the Committee took to “cover their tracks” or “to hide the fact of the breach” to trigger the fraud or concealment exception. Therefore, the court concluded that plaintiff Pellegrini’s claim for breach of fiduciary duty was barred by ERISA’s statute of repose and granted summary judgment to the Committee on this narrow matter. Next, the court held that it would not require exhaustion in this case as it was not persuaded doing so “would serve any useful purpose,” and was reasonably convinced exhaustion would have been futile in any event. Finally, with regard to all four claims, the court agreed with plaintiffs that there are genuine disputes of material facts which render summary judgment inappropriate. Whether the Committee’s assumptions were reasonable and whether defendants violated ERISA will be resolved at trial. The remainder of defendants’ summary judgment motion was therefore denied.

Ninth Circuit

Lundstrom v. Young, No. 18-cv-2856-GPC-MSB, 2024 WL 2097900 (S.D. Cal. May. 9, 2024) (Judge Gonzalo P. Curiel). In compliance with a qualified domestic relations order (“QDRO”) signed by a state court judge in Texas, defendants Ligand Pharmaceuticals, Inc. and the Ligand Pharmaceuticals, Inc. 401(k) Plan distributed plaintiff Brian Lundstrom’s entire 401(k) account balance to his ex-wife, defendant Carla Young. Mr. Lundstrom brought this ERISA action to challenge that decision. In this order the court granted the motion for summary judgment brought by Ligand and the Plan. The court ruled that Mr. Lundstrom could not sustain his premature distribution claim as he failed “to adequately identify how premature distribution harms him,” as the 401(k) assets under the QDRO no longer belonged to Mr. Lundstrom “and thus the Court fails to see how Plaintiff may have been harmed.” Further, the court stated that even assuming Mr. Lundstrom could demonstrate harm, the claim would fail on the merits because the distribution was consistent with both ERISA and the terms of the Plan. Second, the court ruled on Mr. Lundstrom’s claim for failure to provide written procedures for determining the qualified status of a domestic relations order. “Again, Plaintiff must identify ‘downstream consequences’ of that violation…Again, Plaintiff has failed.” As Mr. Lundstrom could not prove he was injured by Ligand’s failure to promptly provide him procedures in writing, the court granted the Ligand defendants’ motion for summary judgment. Finally, the court addressed Mr. Lundstrom’s retaliation claim. Mr. Lundstrom alleges that Ligand retaliated against him for filing this lawsuit by reducing his bonus, limiting his merit increase, and eventually terminating his employment. Ligand insisted that Mr. Lundstrom waived his retaliation claim pursuant to a release in the parties’ written settlement agreements. The court agreed with Ligand that the negotiated confidential settlement agreements’ releases “explicitly released claims for wrongful discharge and claims brought under ERISA arising from Plaintiff’s termination,” and that these claims did not fall within the releases’ carveouts for the ongoing litigation claims. Accordingly, the court granted judgment to Ligand and the Plan on all of the claims asserted against them.

Pleading Issues & Procedure

Fifth Circuit

Thomas v. Group 1 Auto., No. H-23-1416, 2024 WL 1962890 (S.D. Tex. May. 3, 2024) (Judge Lee H. Rosenthal). Plaintiff Craig Thomas brought a wrongful termination lawsuit against his former employer, Group 1 Automotive, Inc. alleging race and age discrimination. Mr. Thomas’ action was filed on April 17, 2023. Almost a year later, and seven months after the deadline to amend pleadings ended, Mr. Thomas moved for leave to amend his pleadings to add a new cause of action under ERISA, presumably under Section 510. Mr. Thomas seeks to plead that he was fired in connection with a serious medical condition. He speculates that his employer terminated him in part to interfere with his right to employee medical benefits. In this order the court scrutinized the motion under Federal Rules of Civil Procedure 15(a) and 16(b). It stressed that Mr. Thomas’ motion was silent about the year-long delay in seeking to amend, and offered no explanation for failing to include an ERISA claim earlier. “Thomas’s counsel offers no excuse for the omission or the delay.” The court went on to express that it could not assess the importance of the amendment as the complaint does not plead a specific section of ERISA that was allegedly violated. Finally, the court found that defendant would be prejudiced if the motion were granted because it would have to consider adopting a new strategy and approach with changes in its motions. It stated, “[t]he prejudice is neither minimal nor easily curable, even with a short continuance.” Accordingly, the court found the one-year wait to add an amended cause of action “dilatory and unexplained” and therefore concluded that Mr. Thomas did not meet his burden of establishing good cause to justify granting the motion. For these reasons, the motion for leave to file an amended complaint was denied.

Seventh Circuit

Lysengen v. Argent Tr. Co., No. 20-1177, 2024 WL 2032927 (C.D. Ill. May. 6, 2024) (Judge Michael M. Mihm). This action involves the sale of Morton, Buildings, Inc. stock to an employee stock ownership plan and the concerns of participant-plaintiff Jackie Lysengen that the stock price was artificially inflated above its fair market value to the detriment of the plan and its participants. Ms. Lysengen, in a representative capacity, seeks plan-wide relief against defendant Argent Trust Company under ERISA Sections 409 and 502(a)(2). Early on, the court denied Ms. Lysengen’s motion for class certification. It based its denial “on certain conflicts that existed between [Ms. Lysengen] and the proposed class members, which the Court found benefitted differently from the ESOP transaction and its valuation.” However, the motion to deny class certification was not a death knell, as the court later ruled that Ms. Lysengen may proceed in a representative capacity under Section 502(a)(2), notwithstanding its denial of class certification. It reasoned that the conflicts it identified which precluded Rule 23 certification were not implicated as “any benefits would inure to the Plan as a whole, not individual members.” The court further noted in that decision that Section 502(a)(2) does not expressly require a plaintiff to proceed under Federal Rule of Civil Procedure 23. Now, Argent has moved to certify for interlocutory appeal the court’s order permitting Ms. Lysengen to proceed on behalf of the plan. In this order the court determined that the applicable conditions for certifying its decision for interlocutory appeal were met. The court therefore granted Argent’s motion. As a threshold matter, the court concluded the motion to certify was timely. It also agreed with Argent that the issue of “whether an individually named Plaintiff may seek plan-wide relief in a representative capacity under ERISA Section 502(a)(2), without doing so on behalf of a certified class,” is a contestable, difficult, and central question of law, appropriate for interlocutory resolution by the Seventh Circuit. On top of that, the court stated that “the question of law is dispositive of the litigation because Plaintiff seeks relief only in a representative capacity under Section 502(a)(2), and not on an individual basis…Thus, if the Court’s Order and Opinion was reversed on appeal, the outcome would be determinative of the litigation. The question of law, therefore, is vital to the future of this litigation[.]” Accordingly, the court granted Argent’s motion, certified the order for interlocutory appeal, and stayed the case pending appeal.  

Ninth Circuit

Plan Adm’r of the Chevron Corp. Retirement Restoration Plan v. Minvielle, No. 20-cv-07063-TSH, 2024 WL 1974544 (N.D. Cal. May. 3, 2024) (Magistrate Judge Thomas S. Hixson). Two ERISA actions have stemmed from the death of Margaret Broussard. In the first, the Chevron Corporation interpleads benefits from two benefit plans held by Ms. Broussard, the Retirement Restoration Plan and the Long-Term Incentive Plan. In the second, Ms. Broussard’s ex-husband, Martin Byrnes, asserts twelve causes of action under ERISA and state law seeking benefits under a defined benefit plan, The Chevron Corporation Retirement Plan, and a defined contribution plan, The Chevron Corporation Employee Savings Investment Plan. The combined benefits under the four plans are worth many millions of dollars. Mr. Byrnes moved to consolidate the two cases pursuant to Federal Rule of Civil Procedure 42. The motion to combine the actions was denied in this order. Although there is significant overlap in the parties and some of the factual and legal issues in the two cases, the court ultimately felt that the existence of the common issues did not weigh in favor of consolidation. In particular, the court carefully noted that benefits under each of the four plans “are provided and governed by written documents with their own terms,” meaning to the extent either case is decided on the terms of the relevant plan documents, those determinations are not relevant to the other case. Further, the court disagreed with Mr. Byrnes that questions over Ms. Broussard’s competence are entirely common to both cases, as her health and mental status deteriorated over time and her mental acuity was therefore not fixed. Accordingly, the court held, “a finding as to competence at one moment in time would [not] govern competence at a later time.” Therefore, the court found that critical differences weigh against consolidation. Additionally, the court ruled that consolidation posed the risk of being both prejudicial and confusing. Finally, the court held that there is no risk of inconsistent judgments and that consolidating the two lawsuits would “frustrate, rather than promote, judicial economy.” For these reasons, the court declined to consolidate the two actions and denied Mr. Byrnes’ motion.

Truong v. KPC Healthcare, Inc. Emp. Stock Ownership Plan Comm., No. 8:23-cv-01384-SB-BFM, 2024 WL 1984569 (C.D. Cal. May 3, 2024) (Judge Stanley Blumenfeld, Jr.). In 2020, participants of the KPC Healthcare Inc. Employee Stock Ownership Plan (“ESOP”) filed a class action lawsuit alleging breaches of fiduciary duties and prohibited transactions for violations surrounding a 2015 debt-leveraged purchase of KPC stock by the ESOP. That action ended in March 2023 when this court approved a class settlement of the claims. But the story doesn’t end there. Unbeknownst to the plan participants, in late December 2021, while the class action challenging the 2015 transaction was still pending, the ESOP leadership, through its trustee, Alerus Financial, N.A., sold the entirety of its KPC stock to Victor Valley Hospital Acquisition, Inc. and converted the ESOP into a profit-sharing plan. It turns out that Victory Valley Hospital was by no means unaffiliated with KPC Healthcare. To the contrary, the two companies were owned by the exact same individuals; two of the individual defendants were the sole owners of Victor Valley and its only board members. Defendants did not disclose the 2021 sale until eight months later, on August 24, 2022, and even then the notification did not disclose the sale price, or defendants’ interest in the purchasing company, to the ESOP participants. Upon learning of the December 2021 sale, plaintiff Sandra Truong, a plan participant, submitted a written request to the ESOP committee for information she believes she is entitled to under ERISA, including the valuation reports used to determine the sale price of the KPC stock. One month later, the ESOP committee responded and sent most of the requested documents, but maintained that Ms. Truong was not entitled to valuation reports under ERISA and refused to provide them. The committee also stated that it could not provide the valuation documents because they were in the sole possession of Alerus, which refused to produce the documents to either the ESOP committee or Ms. Truong. In this action, Ms. Truong has sued the KPC defendants and Alerus alleging violations of disclosure and reporting requirements under ERISA and seeking to obtain the information about the stock valuation as well as statutory penalties and attorneys’ fees. Defendants moved to dismiss on jurisdictional grounds pursuant to Federal Rule of Civil Procedure 12(b)(1), and also for failure to state a claim under Rule 12(b)(6). Their motions were granted in part and denied in part in the court’s meaty decision. Ms. Truong’s first three causes of action are asserted against the KPC defendants for (1) failure to update the SPD, (2) failure to timely file the annual Form 5500 report for the 2022 plan year, and (3) failure to provide the requested valuation documents. Claims four and five are asserted against Alerus. Claim 4 alleges Alerus breached its fiduciary duties by failing to provide the valuation reports. Claim 5 alleges Alerus knowingly participated in the KPC defendants’ breach of fiduciary duty by refusing to provide the valuation report to the KPC defendants. The decision started, logically, with the KPC defendants’ Article III challenge to the complaint. The court agreed with the KPC defendants that Counts 1 and 2 were moot because they eventually provided an updated SPD to Ms. Truong and filed the Form 5500. Under these circumstances, the court agreed that there remains no justiciable dispute over the SPD or the Form 5500. Accordingly, counts 1 and 2 were dismissed. Nevertheless, the court was unpersuaded by the KPC defendants’ position that Ms. Truong lacked standing to assert her valuation documents claim based on lack of redressability. “Plaintiff identifies authority holding that a plan administrator was not relieved of its obligation under ERISA to produce documents in a third party’s possession even when the third party (the claims administrator) refused a request to turn them over to the plan administrator.” Thus, the court found that Ms. Truong’s alleged injury in Count 3 could be redressed by a favorable decision and therefore she has standing to pursue the claim. However, the court was not finished with its analysis of Count 3, as defendants challenged it on the merits as well. They argued that valuation reports do not fall within the category of documents that ERISA § 104(b)(4) requires. At the pleading stage at least, the court was not convinced, and relied on Ninth Circuit case law to conclude that under certain circumstances valuation reports “can…be categorized as instruments under which the plan was operated, especially when requested by participants…who question the accuracy of the computation of their benefits.” The court thus rejected defendants’ position that valuation reports categorically are not encompassed by § 104(b)(4), and denied the motion to dismiss Count 3. The decision then segued to the two counts asserted against Alerus. To begin, the court once again established that Ms. Truong has standing and that she plausibly alleges that she has requested information to which she is, or at least may, be statutorily entitled (the valuation reports) and has been unable to obtain to date. “Plaintiff has adequately alleged an injury in fact – namely, that the withholding of the requested valuation report in violation of ERISA prevents her from fully understanding the benefits to which she is entitled under the plan.” The court then turned to the merits of Counts 4 and 5. First, Ms. Truong failed to convince the court that the valuation reports were plan assets, such that Alerus refusing to produce the report makes it an ongoing fiduciary even now when it no longer acts as trustee. “Plaintiff relies on general trust principles about a trustee’s duty to maintain records, which belong to the trust, but she does not cite a single case – binding or otherwise – holding or suggesting that an ERISA plan has a property interest in a valuation report commissioned by a trustee.” The court thus declined to adopt this novel interpretation of plan assets. Further, the court disagreed with Ms. Truong that Alerus had a duty to produce the valuation report to the committee during its time as the ESOP’s trustee under the terms of their trust agreement. The court held that Ms. Truong’s reading of the trust agreement was “incomplete and unclear.” Accordingly, the court determined that Ms. Truong could not sustain her breach of fiduciary duty claim against Alerus and therefore dismissed Count 4. The same was not true of Count 5, which alleged knowing participation in a breach of fiduciary duty. The court was satisfied that the complaint pled facts sufficient to show that there was a remedial wrong, that the relief sought is appropriate equitable relief under Section 502(a)(3), and that Alerus had actual knowledge of the alleged breach because it knew of Ms. Truong’s request for production from the KPC defendants and still refused to provide the valuation reports. For these reasons, the court denied the motion to dismiss Count 5. Finally, the court clarified that the dismissed claims were all dismissed without prejudice, and granted Ms. Truong the opportunity to move for leave to amend her complaint, should she wish to address the identified deficiencies and restore her complaint back to its fuller form.

Remedies

Second Circuit

Amara v. Cigna Corp., No. 3:01-CV-02361 (SVN), 2024 WL 1985904 (D. Conn. May. 6, 2024) (Judge Sarala V. Nagala). For twenty-three years the participants of the Cigna cash balance plan have been litigating the way Cigna calculated benefits after its traditional pension plan transitioned to the cash balance plan. Plaintiffs successfully argued that Cigna did not provide them with honest and appropriate disclosures regarding the new plan. ERISA aficionados are familiar with this lawsuit and its many twists and turns, including most notably its time before the Supreme Court in 2011. By 2014, the plan participants had prevailed, after their success in the district court was affirmed in the Second Circuit. Nevertheless, thirteen years of litigation had only established that wrongdoing had occurred, and that equitable remedies were available and appropriate. Implementing the relief has presented its own set of obstacles. That relief, called the “Amara benefit,” is a remedy reforming the plan to provide class members all accrued benefits from the defined benefit pension plan (“Part A”), plus all accrued cash balance plan benefits (“Part B”). A+B it turns out is not elementary. Adding two sums together sounds simple enough, until you consider how each of the two sums are calculated. The court spent five more years of work adopting a methodology to measure Parts A and B, which is complex, in part, because the two sums are not entirely independent. As the court noted, “the benefits class members accrued under Part A prior to the Plan transition in 1998 had been rolled over as a lump sum to form the opening cash balance (the ‘Initial Retirement Account’) of the Part B accounts… After years of accumulating interest and benefit credits in the Part B account, the piece of the Part B account that appropriately represented the Part A benefit was difficult to ascertain.” This was especially true because Cigna did not maintain records of the amounts each class member accrued under Part A. Further complicating matters was the fact that Cigna was entitled to credit itself for the Part A benefits through offsetting. Particularly important to the present matter was the court’s 2017 decision on the use of “floor rates” in offset calculations of the A+B remedy. Under the terms of the cash balance plan, the annuity paid under Part B is calculated using the annual rate of interest on 30-year Treasury securities for November the year before benefits are commenced. However, Cigna would not use the 30-year Treasury security rate if that rate is lower than the applicable interest rate in effect on July 1, 2009 – the floor rate. The court ruled previously that Cigna could not use floor rates to calculate offsets on lump sum Part B benefits because those rates fixed interests rates at an artificial floor “which was not actually representative of the value received by class members who had received their Part B benefits as a lump sum; in other words, Cigna could not receive credit for an amount that was greater than that actually provided.” Plaintiffs believe Cigna has been disobeying the court’s orders by using the floor rates to calculate the offsets for participants who elected to receive their Part B benefits in annuity form, leading to a greater offset and thus a decrease in the A+B relief. They also contend that the notices provided to class members are in violation of previous court orders. Plaintiffs therefore moved for an accounting or post-judgment discovery based on their belief that defendants are improperly calculating award payments in violation of court orders. Defendants responded that they are not using floor rates in an inappropriate manner and that they are implementing relief in compliance with all court orders. The court agreed with the Cigna defendants. It held that plaintiffs did not raise significant questions regarding noncompliance with previous orders to justify granting their motions. Broadly, the court stressed that its previous orders addressing the use of floor rates was carefully constricted within the narrow bounds of offsets for participants already paid lump sums, and was silent about the use of floor rates to calculate Part B annuity payments. Accordingly, the court did not find that Cigna was in violation of its orders and did not determine that class members were receiving payments that were lower than they ought to have been. Nor did the court identify any obvious problems with the notices themselves. “Given the numerous ways plaintiffs have challenged Cigna’s calculations over time…the Court finds that Plaintiffs’ suggestion that a fundamental aspect of this methodology (using the Part B payment to calculate the offset) is somehow inappropriate is too little, too late.” Thus, within the court’s narrow scope focused on whether there were significant questions regarding Cigna’s compliance with its prior orders, it did not feel that there was enough to go on to grant the motion for accounting or post-judgment discovery. Plaintiffs’ motion was therefore denied.

Retaliation Claims

Third Circuit

Prolenski v. Transtar, LLC, No. 21-545, 2024 WL 1973495 (W.D. Pa. May. 3, 2024) (Judge W. Scott Hardy). Two trainmen, plaintiffs Joshua Prolenski and Dennis Paceley, on behalf of themselves and similarly situated individuals, have sued their former employers, Union Railroad Company and Gary Railway Company, and their corporate owner Transtar, LLC, for violation of ERISA Section 510 by systematically terminating employees who are participants in the Carnegie Pension plan. According to the complaint, the pension plan has become unsustainably expensive and is underfunded by approximately $1.24 billion. Plaintiffs aver that defendants are looking for ways to reduce their contribution obligations, which cost defendants hundreds of millions of dollars annually. Plaintiffs allege defendants have undertaken a cost-cutting scheme targeting pension plan participants by manipulating disciplinary policies and dispensing “demerits” to plan participants to either terminate them before they vest or to force them into signing last chance agreements in a way that affects their pension rights. “Plaintiffs allege that as a result of this unlawful targeting of [plan participants] their number was dramatically reduced from 77,452 employees to just 51,800 employees between 2013 and 2019.” The allegations regarding Mr. Prolenski’s termination are particularly striking. The complaint alleges that Mr. Prolenski was issued 100 demerits for lateness after he was given permission to take time off to care for his wife who had cancer. Sadly, Mr. Prolenski was later diagnosed with cancer himself and was fired immediately after he returned from FMLA leave, shortly before his vesting period. The rail companies moved to dismiss. Their motion was granted, without prejudice, in this order. To begin, the court held that plaintiffs’ claims are not precluded by the Railway Labor Act. It held that plaintiffs are seeking to assert a right that stems from ERISA, not the terms of the collective bargaining agreement, and that interpretation of the collective bargaining agreement is not required. Thus, the court concluded that it has jurisdiction to consider the alleged ERISA claims. However, it found that those claims currently do not satisfy Rule 8 pleading, as it found the allegations conclusory and speculative. In order to plead their causes of action, the court advised plaintiffs to plausibly link the cost-saving strategy alleged “with the purposeful interference with pension benefits, particularly in relation to the two plaintiffs here.” Because plaintiffs may cure this shortcoming through an amended complaint, the court granted the motion to dismiss without prejudice.

Venue

Ninth Circuit

Higuera v. The Lincoln Nat’l Life Ins. Co., No. 24-cv-744-MMA-KSC, 2024 WL 2031666 (S.D. Cal. May. 7, 2024) (Judge Michael M. Anello). Plaintiff Jose Higuera commenced this ERISA action against The Lincoln National Life Insurance Company seeking judicial review of his claim for disability benefits. On April 25, 2024, the court ordered Mr. Higuera to show cause why his case should not be dismissed or transferred for improper venue. Pursuant to the court order, Mr. Higuera had until May 3, 2024, to respond in writing. To date, he has not done so. Accordingly, the court issued this order dismissing the case on the ground that venue in the Southern District of California was improper. The court based its decision on the fact that Mr. Higuera is a resident of Tulare, California, which is located within the geographic limits of the Eastern District of California. The court stated that “a substantial portion of the events giving rise to Plaintiff’s claim arose in the Eastern District… And Plaintiff does not plead that The Lincoln National Life Insurance Company’s presence within this District is such that it can be deemed a resident here.” Therefore, the court concluded that Mr. Higuera failed to allege facts suggesting venue is proper in the Southern District of California, and because the case is in its infancy, the court decided to dismiss it, without prejudice, rather than transfer the action.

Cedeno v. Sasson, No. 21-2891-cv, __ F.4th __, 2024 WL 1895053 (2d Cir. May. 1, 2024) (Before Circuit Judges Lohier, Menashi, and Robinson)

The Federal Arbitration Act is famously broad and generally requires courts to treat arbitration agreements as “valid, irrevocable, and enforceable.” Courts have ruled that the FAA establishes a liberal federal policy favoring arbitration agreements. As a result, while litigants often try to find ways to evade the FAA, they are seldom successful.

However, if you are a loyal reader of Your ERISA Watch, you know about the “effective vindication” doctrine. This doctrine was created by the Supreme Court as a possible exception to the FAA’s mandate. In a series of decisions, culminating in American Express Co. v. Italian Colors Restaurant (2013), the Supreme Court has repeatedly held that if an arbitration provision prevents a prospective litigant from vindicating a statutory right in arbitration, the litigant may be able to escape arbitration’s clutches.

The problem with this doctrine is that although the Supreme Court has recognized it, the Court has never used it to invalidate an arbitration provision, prompting some observers to wonder whether it is real or merely hypothetical.

According to several Circuit Courts of Appeal, the doctrine is very much alive in the ERISA context. In the past few years, the Third, Seventh, and Tenth Circuits have all examined arbitration provisions and invalidated them based on the effective vindication doctrine. These cases examined claims brought by plaintiffs under Section 502(a)(2) of ERISA, which allows suits for breach of fiduciary duty. The courts concluded that because these actions were brought on behalf of the plan, and sought plan-wide relief, arbitration provisions that only allowed for individual relief prevented the plaintiffs from “effectively vindicating” their rights under ERISA and thus were invalid.

With this background in mind, the Second Circuit examined the effective vindication doctrine in this week’s notable decision. The plaintiff, Ramon Dejesus Cedeno, is a former employee of defendant Strategic Financial Solutions. In 2017 Strategic established an ERISA-governed employee stock ownership plan. Cedeno contends that defendants, which include the trustee of the ESOP and several company officers who sold their shares to the ESOP, violated their fiduciary duties to the ESOP by allowing the ESOP to purchase shares for more than fair market value. Cedeno sought relief under ERISA, including Section 502(a)(2), and requested plan-wide relief in the form of “restoration of Plan-wide losses, surcharge, accounting, constructive trust on wrongfully held funds, disgorgement of profits gained from the transaction, and further equitable relief as the court deems necessary.”

However, as you have surely guessed, the ESOP had an arbitration provision. This provision required claimants to arbitrate, only allowed claims brought in an individual capacity, and prohibited any remedy to any party other than the claimant.

Defendants moved to compel pursuant to the FAA, but the district court denied their motion. (Your ERISA Watch covered this decision in our November 10, 2021 issue.) The court concluded that the effective vindication doctrine applied: “Because the arbitration provision limited Cedeno to recovering losses within his individual plan account, the provision would impermissibly limit the availability of Plan-wide remedies explicitly authorized by ERISA, and thus was unenforceable.” Defendants appealed to the Second Circuit.

The Second Circuit began by noting that the “core concern of the FAA is protecting the enforceability of agreements to vindicate substantive rights[.]” Thus, if an arbitration provision waives substantive rights and remedies, “courts will invalidate provisions that prevent parties from effectively vindicating their statutory rights.” The court noted that it had used this effective vindication doctrine in 2020 to invalidate an arbitration provision in a payday loan agreement that required the application of Chippewa Cree tribal law instead of allowing for the full range of remedies under state and federal law.

With this introduction, the rest of the decision was a foregone conclusion. The court, invoking the Supreme Court’s decision in Massachusetts Mut. Life Ins. Co. v. Russell (1985), noted that while Section 502(a)(2) claims may be asserted by an individual, they are brought in a representative capacity on behalf of the plan and seek plan-wide relief. Thus, with his Section 502(a)(2) claim, Cedeno was not simply seeking a remedy for losses in his particular account; he was seeking a remedy on behalf of the plan that would affect the accounts of others as well and perhaps lead to non-monetary equitable relief.

However, the ESOP arbitration provision “requires claimants like Cedeno to bring their claims solely in their ‘individual capacity and not in a representative capacity,’ and prohibits them from seeking or receiving ‘any remedy that has the purpose or effect of providing additional benefits or monetary or other relief to any Employee, Participant or Beneficiary other than the Claimant.’” Furthermore, the arbitration provision “limits a claimant’s remedy to recovering for the alleged losses to the claimant’s accounts,” as well as other relief “as long as it ‘does not include or result in the provision of additional benefits or monetary relief to any Employee, Participant, or Beneficiary other than the Claimant[.]’”

The Second Circuit flatly stated, “These restrictions effectively preclude Cedeno from pursuing the remedies available to him under Section 502(a)(2)” and thus “effectively prevent him from vindicating his substantive statutory rights[.]”

The court then turned to three arguments raised by defendants. Defendants first argued that the FAA allows for waiver of rights, and thus there is “no unwaivable right to proceed through collective action.” The court stated that this argument “missed the mark for at least two reasons.” First, Cedeno was not asserting a “free-floating right to proceed through collective action for its own sake; he is asserting a right to pursue the full range of statutory remedies to enforce his substantive statutory rights” under ERISA. The arbitration provision did not allow for an “alternative path” to obtain these remedies. If enforced, it “would leave claimants like Cedeno without any means of securing the full range of statutory remedies available to him.” Second, defendants’ argument ignored that Cedeno’s claims were “inherently representational.” He was litigating on behalf of “an absent principal,” i.e., the plan, and thus could not be compelled to waive the rights of that principal.

Defendants’ second argument was that ERISA contains no “clearly expressed Congressional intention” to prohibit agreements to engage in individualized arbitration. In other words, in a battle between ERISA and the FAA, there was no reason ERISA should prevail. The Second Circuit, however, explained that Cedeno was not arguing that there was a conflict between the two statutes, and noted that the Supreme Court had already rejected this type of oppositional analysis in Italian Colors.

Third, defendants argued that Cedeno could effectively vindicate his substantive rights under the arbitration provision. The Second Circuit rejected this contention, explaining that even if Cedeno could individually be made whole through arbitration, the provision still prevented him from obtaining the plan-wide relief guaranteed to him through Section 502(a)(2). The court stated there was no way to “slice and dice” the relief under this section in a way that made Cedeno whole without affecting the rest of the plan. Furthermore, there was no way to apportion the equitable relief Cedeno sought, such as an accounting, imposition of a constructive trust, and disgorgement, among other remedies.

Finally, the Second Circuit cited the decisions of the Third, Seventh, and Tenth Circuits, which all agreed and “reinforce our conclusion that [the arbitration provisions] are unenforceable with respect to Cedeno’s Section 502(a)(2) claims.” In short, “Because Cedeno’s avenue for relief under ERISA is to seek a plan-wide remedy, and the specific terms of the arbitration agreement seek to prevent Cedeno from doing so, the agreement is unenforceable.”

The court was not unanimous, however. Judge Menashi dissented, rejecting Cedeno’s “tendentious reading of ERISA” which created a “manufactured conflict” between ERISA and the arbitration clause.

Judge Menashi offered three criticisms of the majority decision. First, the effective vindication doctrine “is a questionable principle of uncertain legal status” and thus courts should hesitate before applying it. Second, “neither Section 502(a)(2) nor Section 409(a) of ERISA requires Cedeno to act in a representative capacity on behalf of the plan.” Judge Menashi contended instead that “an ERISA plaintiff represents his own individual interest,” and attempted to distinguish Russell and other cases suggesting the contrary with respect to Section 502(a)(2). Third, Judge Menashi argued that “the arbitration clause allows Cedeno to obtain any legal or equitable relief that is necessary to make him whole.” Judge Menashi acknowledged the majority’s concern that equitable relief that only applied to Cedeno would be confusing because it would be unclear how that relief would affect other plan participants, but he shrugged this off, concluding, “that is how equitable remedies work.”

Judge Menashi is clearly in the minority on this issue, but his dissent may give defendants the boost they need to get this issue reheard en banc, or possibly in front of the Supreme Court. Stay tuned to Your ERISA Watch for future developments.

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

Arbitration

Fifth Circuit

Aramark Servs. v. Aetna Life Ins. Co., No. 2:23-CV-00446-JRG, 2024 WL 1839465 (E.D. Tex. Apr. 26, 2024) (Judge Rodney Gilstrap). Aramark Services, Inc. sponsors group health plans governed by ERISA. Since 2018, Aramark has hired Aetna Life Insurance Company to provide the plans with third-party administrative services, including evaluating claims for payments submitted by providers. The parties’ relationship is governed by a master services agreement which contains an arbitration provision. That provision requires disputes among the parties to be settled by binding arbitration in accordance with the American Arbitration Association rules except for “temporary, preliminary, or permanent injunctive relief or any other form of equitable relief.” Aramark has sued Aetna under ERISA Sections 502(a)(2) and 502(a)(3) for breaches of fiduciary duties as third-party plan administrator. In response, Aetna filed a petition to compel arbitration and moved to stay proceedings pending arbitration. Thus, the question before the court was whether the claims asserted by Aramark are subject to mandatory arbitration. However, before the court could make that assessment, it needed to address the threshold issue of whether the parties delegated to the arbitrator the exclusive power to decide whether a particular claim is arbitrable. The court ultimately agreed with Aramark that they had not: “the Court finds that the parties did not clearly and unmistakably delegate all threshold issues of arbitrability to the arbitrator… The plain language and most natural reading of the Arbitration Provision is that the parties agreed to delegate arbitrability to the arbitrator in accordance with the AAA rules for all disputes except those seeking any form of equitable relief, which are carved out in the same sentence.” The court thus found that it should decide the threshold issue of arbitrability and therefore turned to its discussion of whether Aramark’s ERISA claims are properly subject to mandatory arbitration. Relying on the Supreme Court’s analysis in Cigna v. Amara, the court agreed with Aramark that its Sections 1132(a)(2) and (a)(3) claims under ERISA for monetary damages are properly equitable and not subject to mandatory arbitration under the arbitration provision. “In the Court’s view, the critical question in Amara was whether a surcharge remedy against an ERISA fiduciary was equitable. Nothing in Amara suggests that the Supreme Court’s reasoning is limited only to § 1132(a)(3).” For the court, it was critical that Aetna is a fiduciary and therefore “analogous to a trustee.” Importantly, Aetna itself has previously taken the position that ERISA claims seeking money damages, including under Section 502(a)(2), are equitable. “ERISA claims seeking money damages are either equitable or they are not, and Aetna should not be able to take inconsistent positions on this issue across different cases.” For these reasons, the court concluded that Aramark’s claims all fall within the equitable relief carve-out of the arbitration provision and are therefore not subject to mandatory arbitration. Accordingly, the court denied the motion to stay the case pending arbitration.

Discovery

Ninth Circuit

Stambaugh v. Reliance Standard Life Ins. Co., No. CV-23-08140-PCT-DLR, 2024 WL 1854499 (D. Ariz. Apr. 22, 2024) (Judge Douglas L. Rayes). Plaintiff Laura Stambaugh worked as a medical technologist for over 15 years, until 2019, when she stopped working and submitted a claim for disability benefits. Ms. Stambaugh suffers from Type 2 diabetes which has led to diabetic neuropathy. Although Ms. Stambaugh’s claim for short-term disability benefits was approved, her claim for long-term disability benefits was denied by defendant Reliance Standard Life Insurance Company. Reliance Standard originally retained a non-doctor “clinical consultant” to review Ms. Stambaugh’s claim. When Ms. Stambaugh appealed the denial, Reliance Standard then retained a third-party medical records review vendor called Medical Consultants Network to hire a doctor to render an opinion of Ms. Stambaugh’s medical records. The doctor the vendor hired was not a neurologist, but an endocrinologist who opined that he could not speak to the neuropathy and would “defer to a neurologist to determine the extent to which it may be causing limitations.” Nevertheless, the endocrinologist concluded that Ms. Stambaugh was not disabled. At no point did Reliance Standard communicate with either of Ms. Stambaugh’s treating physicians, nor engage in a vocational assessment of the duties and physical requirements of Ms. Stambaugh’s occupation. In this ERISA action, Ms. Stambaugh is challenging the adverse benefit decision. Before the court here was Ms. Stambaugh’s motion for discovery in which she sought information pertaining to Reliance Standard’s conflicts of interest, claims handling practices, and the particulars of how her claim was handled. The court granted the discovery motion in its entirety. The court stated that it cannot determine the weight, if any, to assign to the conflict of interest here “without extrinsic evidence of bias obtained through discovery.” On the allegations of the complaint alone, the court was suspicious of Reliance Standard’s handling of Ms. Stambaugh’s claim, saying it appears to raise red flags about whether the conflict had in fact influenced the decision to deny benefits. “Defendant’s actions in administering the claim appear to be inconsistent with an unconflicted fiduciary earnestly acting as an ERISA fiduciary.” Moreover, the court was aware that it is Ms. Stambaugh’s burden to prove how egregious Reliance Standard’s conflicts of interest were and what effect they had on its decision to deny the claim. Therefore, the court held that Ms. Stambaugh would be disadvantaged if she did not have the chance to conduct discovery into these topics. “Facts involving the Defendant’s processing and investigation of the claim – including the history of the outside expert’s opinions for insurance companies, the relationship of Defendant with the outside vendor and outside expert, and the reasons given for the denial of the claim – are relevant to the inquiry.” As a result, the court stressed the need for discovery, including all of the requested depositions, interrogatories, and requests for productions. The scope of Ms. Stambaugh’s requested information, the court held, was not disproportionate to the needs of the case nor unduly burdensome for the insurance company. “Although the value of the LTD benefits may seem negligible to Defendant, they are not negligible to the Plaintiff, who purportedly is unemployed.” Thanks to this decision, Ms. Stambaugh will receive the discovery she wished for and through it perhaps glean a better understanding into why Reliance Standard acted the way it did.

ERISA Preemption

Ninth Circuit

Vernon v. Metropolitan Life Ins. Co., No. 2:23-cv-01829 DJC AC PS, 2024 WL 1857438 (E.D. Cal. Apr. 26, 2024) (Magistrate Judge Allison Claire). A pro se plaintiff, Jimmy Lee Vernon Jr., brought this action against Metropolitan Life Insurance Company (“MetLife”) asserting state law causes of action arising from MetLife’s failure to pay life insurance benefits to him from a life insurance policy belonging to his deceased father. Mr. Vernon asserted state law claims for breach of contract, breach of fiduciary duties, breach of implied obligation/covenant of good faith and fair dealing, breach of contractual duty to pay a covered claim, intentional misrepresentation, concealment, and negligence. MetLife moved to dismiss all claims as completely preempted by ERISA. The court in this order agreed with MetLife that the claims are preempted and granted the motion to dismiss. However, particularly in light of the fact that Mr. Vernon is without legal representation, the court dismissed the complaint without prejudice and allowed Mr. Vernon to file an amended complaint asserting causes of action under ERISA. As an initial matter, the court took judicial notice of the policy and the summary plan description. Relying on the plan documents, the court stated that it was clear the plan is governed by ERISA as it is a welfare benefit plan established by an employer, General Motors, for the purpose of providing benefits to its employees. Having determined the plan is an ERISA plan, the court agreed with MetLife that ERISA preempts the state law claims asserted because “ERISA provides the exclusive remedial scheme for any claims that relate to a plan [and] preempts any claims for extracontractual damages.” Therefore, the question of whether Mr. Vernon is entitled to proceeds from his father’s life insurance policy is governed by federal law. In order to state a claim, Mr. Vernon will have to amend his complaint to allege claims for benefits and/or breaches of fiduciary duties under ERISA, and has 30 days to do so.

Medical Benefit Claims

Tenth Circuit

L.L. v. Anthem Blue Cross Life & Health Ins. Co., No. 2:22-CV-00208-DAK, 2024 WL 1937900 (D. Utah May. 2, 2024) (Judge Dale A. Kimball). Plaintiff L.L. initiated this action to challenge his healthcare plan’s denial of claims for his teenage daughter J.L.’s stay at a sub-acute outdoor behavioral health facility in 2019. The family’s claim for benefits was denied under the plan’s exclusion for experimental and investigative treatment, although the plan terms did not expressly exclude wilderness therapy or other outdoor behavioral health programs. During the family’s appeal of the denial, they offered evidence from an expert in outdoor behavioral therapy, Dr. Michael Gass, who has devoted his career to the study of this type of care. Dr. Gass provided studies contradicting the plan’s conclusion that the efficacy of wilderness therapy programs for the treatment of mental health disorders is questionable and “there is no proof or not enough proof it improves medical outcomes.” Nevertheless, the denial was upheld during the administrative appeal process, and defendants reiterated that their internal policy considers outdoor behavioral health therapy investigative and experimental. In response to Dr. Gass, the denial letter stated only that the reviewers had “reviewed all the information that was given [to them by the family] with the first request for coverage.” L.L. sued the administrator of his plan, his former employer DLA Piper LLP, and the claims administrator, Anthem Blue Cross Life and Health Insurance, challenging the adverse benefit decision. The parties filed cross-motions for summary judgment. Before the court addressed the merits of the denial, it needed to resolve the parties’ dispute over the appropriate standard of review. The plan did not contain an express discretionary clause. Instead, it was peppered with phrases such as the claims administrator shall “evaluate the claim information and determine the accuracy and appropriateness of the procedure,” and medically necessary procedures are those which the “claims administrator determines to be…appropriate and necessary for the diagnosis or treatment of the medical condition.” The family argued that this language only outlined how decisions were made under the plan, which fell short of granting clear discretionary authority. The court disagreed. It held that the plan language confers authority to the claims administrator and allows it to determine medical necessity. “It is well established that language such as this is sufficient to grant discretionary authority.” Accordingly, the court concluded that the appropriate standard of review is arbitrary and capricious. Plaintiffs argued that under either standard of review, defendants’ decision was not reasonable because it was based on an internal policy rather than the plan itself, the care J.L. received was not investigational, and defendants did not engage in a meaningful dialogue with the family during the internal appeals process. The court disagreed with the plaintiffs on the first matter. It found that the internal policy was incorporated into the plan and defendants were allowed to rely on the policy to aid in their coverage determination. However, the court agreed strongly with plaintiffs on their second two points. The court found that defendants failed to engage in a meaningful dialogue with the family and failed to dispute their assertion that the care was not investigational as defined by the plan. The court thus found that defendants acted arbitrarily and capriciously because the denial failed to “contain a reasoned analysis for its unexplained conclusions.” In short, the court stated that “[i]nsurers cannot just say something is investigational because of a policy and refuse to engage in meaningful dialogue when plaintiffs present contradictory information.” Thus, the court granted summary judgment in favor of plaintiffs and denied defendants’ cross-motion for summary judgment. The decision ended with the court concluding that remand was the proper remedy where, as here, defendants failed to engage with plaintiffs and adequately consider the evidence. Defendants were accordingly ordered to review the claim anew in light of this decision.

S.B. v. Bluecross Blueshield of Tex., No. 4:22-CV-00091, 2024 WL 1912224 (D. Utah May. 1, 2024) (Judge David Nuffer). Plaintiff R.B. started treatment at a licensed residential treatment center, Solacium Sunrise, on June 29, 2021 to treat mental health conditions. R.B. is a beneficiary of the American Heart Association Managed Healthcare Plan. In this action, R.B. and her father, S.B., seek reimbursement of the more than $330,000 in healthcare costs the family incurred from R.B.’s treatment. They assert ERISA claims for benefits, denial of a full and fair review, and for violation of the Mental Health Parity and Addiction Equity Act. AHA moved for dismissal of the complaint, arguing the claims are not plausible. It argued that plaintiffs cannot state a plausible claim for benefits because the plan requires residential treatment centers to have 24-hour onsite nursing in order to be covered, and it is undisputed that Solacium Sunrise does not meet this requirement. In addition, AHA argued that plaintiffs were not prejudiced by a lack of full and fair review because they were not entitled to benefits under the terms of the plan. Finally, AHA argued that plaintiffs failed to plead a plausible Parity Act claim and that their Parity Act claim lacks a sufficient nexus to the adverse benefit determination. In this decision the court granted the motion to dismiss the wrongful denial of benefits and the full and fair review claims, but denied the motion to dismiss the Parity Act violation claim. The court agreed with AHA that the plan unambiguously requires all residential treatment centers to have a 24-hour onsite nurse, including for residential treatment centers for children and adolescents. The court concluded that the plan’s definition of residential treatment centers for children and adolescents “does not limit or modify” the plan’s broader definition for all residential treatment centers, which requires licensed nursing all hours of the day. Because the plan unambiguously does not provide for R.B.’s care at Solacium Sunrise, the court dismissed both the claim for benefits and full and fair review claim. The court agreed with the family that their complaint plausibly alleged they were denied a full and fair review. However, it ruled that they could not sustain this claim because its remedy would be to order a remand, which was pointless because they were not entitled to benefits under the plan and thus there was no prejudice. However, the court’s determination that the benefits were not covered under the plan terms did not undermine plaintiffs’ Parity Act claim. In this claim, the family alleges that the Plan used generally accepted standards of care to draft the plan’s treatment limitations and that only the 24-hour onsite nursing requirement for mental health residential treatment centers exceeds the generally accepted standards of care, while comparable medical and surgical facilities do not contain such additional requirements. For pleading purposes, the court was satisfied that these allegations plausibly allege a violation of the Parity Act. The court further held that other cases similarly challenging Blue Cross’s 24-hour onsite nursing requirement under the Parity Act which were dismissed were distinguishable because of the ways they framed their allegations. Moreover, the court agreed with the family that their Parity Act claim has a nexus to the adverse benefit determination because the provision in the plan that caused the residential treatment centers to exceed their generally accepted care standards was the same 24-hour onsite nursing requirement that foreclosed their claims for benefits. Finally, the court declined to take judicial notice of a document provided by AHA because the plaintiffs challenged the authenticity of the document and their complaint did not incorporate it by reference. Accordingly, R.B. and S.B. may move forward with their Parity Act violation claim.

S.F. v. Cigna Health & Life Ins. Co., No. 2:23-CV-213-DAK-JCB, 2024 WL 1912359 (D. Utah May. 1, 2024) (Judge Dale A. Kimball). In the past, Your ERISA Watch has reported on a health insurance practice called “step therapy,” sometimes referred to as “fail first,” which requires patients to fail at lower levels of treatment before qualifying for the higher level care their providers have recommended. These policies are often present in mental healthcare cases, and also in claims for prescription drugs, and they are often a barrier to patients getting prescribed healthcare. In this action we get a look at the reverse, when patients step down from residential treatment centers to a lower “intermediate behavioral health” level of care, and how these claims too run into insurance roadblocks. At issue here are wilderness therapy and outdoor youth programs, which the two Cigna-administered self-funded healthcare plans at issue excluded from coverage both expressly and implicitly as “experimental, investigational, or unproven services.” Because of these categorical exclusions, the two patients and their families were denied reimbursement of their claims for the treatment they received at outdoor behavioral health facilities in Utah. The patients’ denial letters stated that their claims were denied because of a “lack of peer reviewed, evidence-based scientific support for the effectiveness of wilderness therapy or outdoor youth programs.” In this action, the two families of participants and beneficiaries sued their ERISA-governed plans and Cigna, the third-party administrator who issued the denials. All three defendants moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Cigna also moved to dismiss one family’s claims pursuant to Federal Rule of Civil Procedure 12(b)(1). The motions to dismiss were entirely granted in this order. To begin, the court agreed with Cigna that one of the families, plaintiffs S.F. and E.F., should have their claims dismissed for lack of Article III standing because Cigna is no longer the claim administrator for the Slalom Plan. Plaintiffs disagreed, arguing that Cigna’s lack of a current role shouldn’t shield it from liability or absolve its responsibilities arising from its prior role during the relevant time period. Relying on a decision from the Eighth Circuit, the court concluded that a former claims administrator is not in a position to make current or future claims determinations and no longer has access to plan funds to pay claims, meaning it cannot provide the relief the F. family plaintiffs seek in any of their counts. “Because there is no question of fact as to whether Cigna can provide any redress to S.F. and E.F. under the Slalom Plan, the court dismisses S.F. and E.F.’s claims against Cigna for lack of standing under Federal Rule of Civil Procedure 12(b)(1).” The court then addressed exhaustion, and defendants’ arguments that all of the plaintiffs’ ERISA benefit claims should be dismissed because neither set of plaintiffs did a second-level appeal required under their plans and permitted under ERISA. Plaintiffs argued that the plans use the language “may” for the second-level appeal to an independent review organization, which indicates that the appeal was voluntary. The court did not agree. “Even though the text states that members may file an appeal if they are unsatisfied with the decision on their first appeal, it does not state that members can simply skip the step before bringing an ERISA claim in court. A member does not need to pursue any appeal. But if they want to file a lawsuit, they need to exhaust the two levels of appeals in the plan. Both Plans state that a plaintiff should only ‘bring a civil action under section 502(a) of ERISA if [they] are not satisfied with the outcome of the ‘Appeals Procedure.’ The Plan makes clear that the ‘Appeals Procedure’ includes both levels of appeal. Therefore, while the Plans do not require a member to file a second level appeal, if the member wants to bring a lawsuit, the member must complete both levels of appeals.” Accordingly, the court agreed with defendants that plaintiffs could not sustain their ERISA benefit claims because they failed to exhaust administrative remedies prior to suing. Finally, the court dismissed the Mental Health Parity and Addiction Equity Act claim. It determined that this claim failed because plaintiffs did not plausibly allege a non-speculative disparity between an exclusion for mental health benefits and that for analogous medical/surgical benefits. The experimental exclusion, the court concluded, “broadly excludes wilderness therapy programs and outdoor youth programs, whether to treat medical, surgical, or mental health care.” Thus, the court dismissed the whole of plaintiffs’ action and closed the case.

Pension Benefit Claims

Third Circuit

The Procter & Gamble U.S. Bus. Servs. Co. v. Estate of Rolison, No. 3:17-CV-00762, 2024 WL 1861537 (M.D. Pa. Apr. 29, 2024) (Judge Karoline Mehalchick). Long ago, in the 1980s, decedent Jeffrey Rolison and Margaret M. Sjostedt were a cohabitating couple. Mr. Rolison was employed by Procter & Gamble and was enrolled in The Procter & Gamble Profit-Sharing Trust and Employee Stock Ownership Plan. In 1987, Mr. Rolison designated Ms. Sjostedt as his beneficiary. Years went by and circumstances changed. The couple broke up; Ms. Sjostedt married someone else and became Ms. Losinger while Mr. Rolison married someone else and had two children. What did not change was the beneficiary designation. Over the years Procter & Gamble routinely informed Mr. Rolison of his option to designate a new beneficiary, but he never did so. This continued even after Procter & Gamble switched to an online beneficiary designation system, which Mr. Rolison logged onto several times. Accordingly, when Mr. Rolison died in 2015, Procter & Gamble was ready to pay benefits to Ms. Losinger as the named beneficiary. The Estate of Mr. Rolison intervened, believing that Mr. Rolison would never have maintained Ms. Losinger as his beneficiary intentionally. Presented with conflicting claims for the plan funds, Procter & Gamble filed this lawsuit to determine the proper beneficiary entitled to the proceeds. The case has a long and complicated procedural history. The court’s final rulings were made in this decision, in which it entered judgment in favor of Ms. Losinger and Procter & Gamble and denied the Estate’s motion for summary judgment. Oversight or not, Mr. Rolison never changed his beneficiary designation. The court noted that it “already established multiple times that P&G adequately informed Rolison of the status of and how to change his beneficiary designation.” The court found that Procter & Gamble was not in violation of any fiduciary duty and affirmatively and consistently notified Mr. Rolison that his online benefit account lacked a designation of beneficiary and without a new online beneficiary designation his 1987 paper beneficiary designation remained valid. In particular, the court wrote the Estate failed to establish detrimental reliance by Mr. Rolison. “There is no record evidence in this case that supports the Estate’s position that Rolison failed to change his beneficiary status because of any misrepresentation or omission on P&G’s part… Further, the Estate has not come forward with evidence that Rolison’s failure to change his designation beneficiary is attributable to Rolison’s misguided belief that Losinger was not his beneficiary.” Holding that no reasonable fact-finder could conclude that Mr. Rolison detrimentally relied on Procter & Gamble omissions, the court determined there was no breach of fiduciary duty. Therefore, the court granted judgment to Procter & Gamble. Finally, the court granted judgment in favor of Ms. Losinger and against the Estate on the Estate’s claim for a constructive trust. The court agreed with Ms. Losinger that the Estate failed to produce any clear and convincing evidence that Ms. Losinger’s continued designation as beneficiary of the plan was a mistake to justify the imposition of the equitable remedy of a constructive trust. Thus, Ms. Losinger, as named beneficiary, was found to be entitled to the plan funds, and the Estate’s motion for summary judgment was denied. As for the mind of the deceased, that we’ll never know.

Pleading Issues & Procedure

Sixth Circuit

Diederichs v. FCA US, LLC, No. 23-11287, 2024 WL 1957328, 2024 WL 1960617 (E.D. Mich. Apr. 30, 2024) (Magistrate Judge Curtis Ivy, Jr.). Plaintiff Karen Diederichs, as guardian and conservator of her husband, Mark Diederichs, who suffers from early onset Alzheimer’s disease, filed this action against her husband’s former employer, defendant FCA US LLC, asserting claims under Michigan law and ERISA seeking disability benefits. Defendant moved to dismiss. The assigned magistrate judge issued this report and recommendation recommending the motion be granted. First, the magistrate agreed with defendant that its Disability Absence Program was a payroll practice, not an ERISA plan, as it pays disability benefits for a set period out of the company’s general assets. As a result, the magistrate recommended that the ERISA claim for benefits under the program be denied, and stated that to the extent Ms. Diederichs intends to raise a breach of contract claim under the program, that claim too should be dismissed because the Disability Absence Program is not an enforceable contract. The report then progressed to the ERISA claims relating to the long-term disability policy for breach of contract. Once again the judge agreed with defendants, this time because the claims were untimely under ERISA’s statute of limitations for breach of fiduciary duty claims. “The plans disclosed in September 2019 provided the information necessary to alert Plaintiff that she may have been harmed – the documents included the LTD Plan which made clear that exhaustion of the DAP benefits was a prerequisite to LTD benefits, and the documents disclosed the time constraints for filing a claim for DAP benefits. Thus, Defendant contends that this lawsuit should have been filed no later than September 2022, not May 2023.” The magistrate therefore agreed that the breach of fiduciary duty claims should be dismissed as time-barred. Finally, the report recommended dismissing the ERISA claim for benefits for benefits under the long-term disability policy. It stated, “Plaintiff/Mr. Diederichs was not eligible for benefits on the face of the complaint and the documents, so the claim for benefits should be dismissed.” Moreover, the magistrate agreed with defendants that this claim too was untimely, as the plan contains a one-year limitation. “If Plaintiff filed the claim on December 18, 2019, and Defendant failed to respond within 45 days, the denial is deemed to be February 1, 2020. The latest date to bring a claim contesting that denial is February 1, 2021. The May 2023 lawsuit falls outside that time.” Finally, because the report found all the underlying claims should be dismissed, it also recommended dismissing the requests for interest, costs, and attorneys’ fees. For these reasons, the report determined that none of Ms. Diederichs’ claims could go forward and therefore recommended the motion to dismiss be granted. In the second decision issued this week by the magistrate in this case, cited above, the court ruled on Ms. Diederichs’ motion for leave to file an amended complaint. That decision ruled that amendment for all ERISA claims would be futile for the reasons incorporated in the report and recommendation, i.e., that the claims were untimely and not sustainable on the face of the complaint. Further, the magistrate ruled that any state law claims for disability benefits under the long-term disability plan would be preempted by ERISA. Finally, for reasons stated in the magistrate’s report recommending dismissal, he also concluded the Disability Absence Program was not an enforceable contract and no breach of contract claim could survive a motion to dismiss. Thus, Ms. Diederichs’ motion for leave to amend was denied.

Provider Claims

Third Circuit

Abira Med. Labs. v. National Ass’n of Letter Carriers Health Benefit Plan, No. 23-05142 (GC) (DEA), 2024 WL 1928680 (D.N.J. Apr. 30, 2024) (Judge Georgette Castner). A medical testing laboratory business, plaintiff Abira Medical Laboratories, LLC, filed more than 40 cases in both state and federal court suing for reimbursement of laboratory testing, including COVID-19 viral testing. In this particular matter, Abira has sued the National Association of Letter Carriers Health Benefit Plan asserting eight state law causes of action. Defendant moved to dismiss for failure to state a claim. Its motion was granted, without prejudice, by the court in this decision. The court agreed with the plan that the breach of contract and breach of implied covenant of good faith and fair dealing claims were speculative because “Plaintiff has not adequately pleaded the existence of a contract or its breach.” Next, the fraudulent misrepresentation, negligent misrepresentation, promissory estoppel, and equitable estoppel claims premised on the allegation that “Defendants’ representatives communicated to Abira that Defendants would pay Abira for performing subsequent testing services to Defendants’ insureds,” were all dismissed for lacking requisite details about the substance of what promises were made, how, and by whom. The court dismissed the quantum meruit/unjust enrichment claim, concluding plaintiff did not plausibly establish the existence and terms of any plan which would “allow this Court to infer that Defendant unjustly retained a benefit under any plan without payment.” The decision ended with a discussion of the complaints “references to various statutes,” including ERISA, the Families First Coronavirus Response Act, and the CARES Act. Without setting forth a claim under ERISA, the complaint repeatedly references it. The plan argued that even if the complaint actively alleged a claim under ERISA it would fail because the plan is not governed by ERISA, and is instead governed by the Federal Employees Health Benefits Act (FEHBA). The court wrote that even if ERISA were applicable, Abira would still not have plausibly stated a claim because it did not provide information about assignments of benefits necessary to confer derivative standing. As for the CARES Act and the Families First Coronavirus Response Act claims, the court agreed with its sister courts that “neither statue provides a private right of action.” Finally, the court declined to respond to defendant’s argument that FEHBA preempts plaintiff’s state law claims to the extent they seek payment for COVID-19 testing, as the claims were already dismissed and because Abira did not distinguish between claims for COVID testing and other lab work.

University Spine Ctr. v. Cigna Health & Life Ins. Co., No. 23-02912 (SDW)(CLW), 2024 WL 1855066 (D.N.J. Apr. 29, 2024) (Judge Susan D. Wigenton). Plaintiff University Spine Center and two of its surgeons performed spinal surgery on a patient enrolled in a health insurance plan through his employer, L3 Harris, administered by Cigna Health and Life Insurance Company. At the time of the surgery in March 2022, the provider was out-of-network, “thereby making the surgery an out-of-network medical procedure pursuant to the terms of the Plan’s Summary Plan Description (‘SPD’).” Under the terms of the SPD, the maximum reimbursement charge for out-of-network claims is the lowest of either (1) the provider’s normal charge for the service, (2) the amount agreed upon by Cigna and the provider, or (3) a charge representing a percentage of an ordinary payment for the same or similar service in the geographic area. Plaintiff billed Cigna $400,212 for the cost of the surgery. Cigna issued a payment of just $3,400 as reimbursement. University Spine Center believes that the $3,400 payment was not in keeping with the terms of the plan and therefore sued under ERISA Section 502(a)(1)(B) to recover additional reimbursement equaling the difference in the billed and paid amount. L3 Harris and Cigna moved to dismiss for failure to state a claim. They argued that the complaint fails to allege or explain how the reimbursement calculation was incorrect under the terms of the plan or whether the amount the provider is seeking in additional reimbursement is required to be paid pursuant to the SPD. The court agreed with defendants that the complaint did not satisfy Rule 8 pleading and the standards set forth in the Supreme Court’s Twombly and Iqbal decisions. While the court acknowledged that the complaint cites the definition of the maximum reimbursement rates for out-of-network services in the plan, it stated that this alone was “not enough to satisfy the requirements of Rule 8” without additional information. As currently pled, the court understood the complaint to contain “little more than an assertion that Plaintiff is owed more than it was paid for the services it provided and must be dismissed for failure to state a claim under Rule 8.” Accordingly, the motion to dismiss was granted, without prejudice, and University Spine Center has 30 days to file a second amended complaint.

Statutory Penalties

Eleventh Circuit

Griffin v. United HealthCare Servs., No. 23-13429, __ F. App’x __, 2024 WL 1855456 (11th Cir. Apr. 29, 2024) (Before Circuit Judges Pryor, Newsom, and Anderson). A dermatologist proceeding pro se, plaintiff-appellant W.A. Griffin, appealed the district court’s order dismissing her ERISA claims for statutory penalties against United Healthcare Services. The district court concluded that Griffin did not have the right to sue for statutory penalties because the assignment of rights her patients signed did not confer an independent right to Griffin to pursue a Section 502(c)(1) claim for failure to timely furnish documents upon request. In this order, the Eleventh Circuit affirmed. “When scrutinizing such assignments, we have emphasized that the transfer of the general right to recover benefits provided by an ERISA plan does not necessarily transfer the right to pursue non-payment claims, including statutory penalties.” In this particular instance, the appeals court agreed with the lower court that the assignments lacked specific language evidencing the patients’ intent to transfer their right to assign ERISA claims for statutory penalties, and instead contained only general language about the conferral of “rights and benefits” to their provider. In the absence of more specific language in the assignments, the Eleventh Circuit concluded the district court properly held that Griffin lacked standing to bring her statutory penalties claims on behalf of her patients. Accordingly, the court of appeals affirmed the district court’s dismissal.