Knudsen v. MetLife Grp., Inc., No. 23-2420, __ F.4th __, 2024 WL 4282967 (3d Cir. Sept. 25, 2024) (Before Circuit Judges Restrepo, Freeman, and McKee)
Under the “case or controversy” requirement of Article III of the United States Constitution, a plaintiff must be able to show that the defendant has caused a redressable injury in fact in order to have standing to sue under a federal statue in federal court. In this case, the Third Circuit found Article III to be an insurmountable hurdle for plan participants in an ERISA-governed healthcare plan seeking to challenge their employer’s retention of $65 million in prescription drug rebates.
The plan at issue is a self-funded welfare benefit plan sponsored by MetLife which provides not just medical benefits but other benefits, such as life insurance, for almost 37,000 participants from over $1.4 billion in assets. Around 30% of the contributions to the plan comes from participant contributions in the form of co-payments, deductibles, and co-insurance. MetLife pays for the remainder from the trust fund or its own assets.
The prescription drug benefit of the plan was administered by Express Scripps, a pharmacy benefit manager (PBM). The plan paid Express Scripts between $3.2 and $6.2 million annually under a contract which, among other things, required Express Scripts to negotiate volume discounts and rebates with drug manufacturers. Plan documents in turn required that these rebates be used toward plan expenses but stated that they were not to be considered in calculating co-payments or co-insurance. MetLife directed 100% of the rebates to itself during the six-year period at issue in this case.
The participants alleged that the rebates were plan assets because they were obtained through the exercise of discretionary authority by MetLife in negotiating the contracts and in allocating the rebates to itself at the expense of plan participants. Moreover, the participants alleged that they were financially harmed by MetLife’s retention of the rebates because had the rebates been directed to the plan rather than to MetLife the participants would have had lower out-of-pocket expenses. Specially, they argued on appeal that MetLife, consistent with the terms of the plan, could have used the rebates to reduce participant contributions (premiums) or simply directed the rebates to each participant in proportion to their contributions.
The district court granted MetLife’s motion to dismiss, concluding that plaintiffs did not have standing to pursue their claims. In doing so, the court relied on the Supreme Court’s decision in Thole v. U.S. Bank N.A., 590 U.S. 538 (2020), and the Third Circuit’s decision in Perelman v. Perelman, 793 F.3d 368 (3d Cir. 2015), which it ruled “categorically bar an ERISA plaintiff’s assertion of injury based on increased out-of-pocket costs” and require a loss of plan benefits in order to establish injury in fact.
On appeal, the Third Circuit did “not read those precedents so broadly.” Instead, the court of appeals read Perelman not as requiring a loss of benefits in all cases to establish standing but as simply rejecting as speculative under the facts of that case the plaintiff’s assertion that he had suffered an injury in the form of an increased risk that his pension plan would default on payments.
Similarly, the Third Circuit pointed out that the Supreme Court in Thole did not categorically require a loss of plan benefits as the basis for standing but instead expressly “declined to answer whether plan participants would have standing ‘if the mismanagement of the plan was so egregious that it substantially increased the risk that the plan and the employer would fail and be unable to pay the participants’ future pension benefits.’”
Thus, “[a]s a purely theoretical proposition,” the court “agree[d] with Plaintiffs” and “decline[d] to hold that Thole and Perelman require dismissal, under Article III, whenever a participant in a self-funded healthcare plan brings an ERISA suit alleging that mismanagement of plan assets increased his/her out-of-pocket expenses.” Instead, noting that financial harm of even a few pennies is sufficient to establish a concrete injury for Article III standing purposes, the court concluded that accepting MetLife’s argument would mean that even plaintiffs who had been improperly overcharged for their premium contributions would have no recourse. This was a bridge too far for the court, which saw nothing in Thole or Perelman that required such a result.
Nevertheless, looking to a number of other Third Circuit decisions – specifically, two contrasting results in Finkelman v. Nat’l Football League and Cottrell v. Alcon Laboratories – the court affirmed the district court’s dismissal for lack of standing, finding that the allegations of the complaint “fall short of alleging concrete financial harm.”
Specifically, the court faulted plaintiffs for failing to allege how MetLife’s challenged conduct in retaining drug rebates caused participants’ out-of-pocket costs to go up “in what years, or by how much.” Because plaintiffs did not allege that they had an “‘individual right’ to the withheld rebate monies, such that, MetLife’s purportedly unlawful retention of the monies harmed Plaintiffs,” they failed to “show that the purported violative conduct was the but-for-cause of their injury in fact, namely, an increase in their out-of-pocket costs above what they would have been if MetLife had deposited the rebate monies into the Plan trust.” Indeed, the court pointed out that plaintiffs’ own allegations – that MetLife “may have” reduced participant contributions or distributed rebates to participants in portion to their contributions – “permit an inference that even if MetLife had not committed ERISA violations, it may not have taken any of these listed actions.” Thus, the Third Circuit affirmed the district court’s dismissal of the case for lack of standing, although it left open the possibility that plaintiffs might be able save their case with an amended complaint.
The result seems peculiar, despite the Supreme Court’s decision in Thole, given that the court does not appear to have doubted that the rebates were plan assets that were not treated as such by MetLife, but were instead improperly retained by the company. Because, under ERISA, plan assets may only be used to pay plan benefits and defray reasonable expenses, it is hard to see how MetLife’s treatment of the rebates as its own was proper or anything but harmful to plan participants. Be that as it may, it seems clear that standing is likely to continue to be a significant roadblock to lawsuits challenging fiduciary conduct that does not cause a direct financial loss (or imminent threat of one) to plan participants.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Attorneys’ Fees
Sixth Circuit
Canter v. Alkermes Blue Care Elect Preferred Provider Plan, No. 1:17-CV-399, 2024 WL 4273334 (S.D. Ohio Sept. 24, 2024) (Judge Douglas R. Cole). As we reported in our May 29, 2024 edition, the court in this case agreed that plaintiff Keith Canter was entitled to medical benefits for his back surgery and awarded him attorney’s fees in the amount of $204,771. In our summary we noted that the “the case was terminated.” The court similarly noted that the case was at its “long-awaited end.” As the court put it, we were both “overly optimistic.” Canter returned with a post-judgment motion for further attorney’s fees, arguing that he should be compensated for work performed after the court remanded the matter and his insurer, BCBSMA, reversed its decision. In this order the court applied the Sixth Circuit’s five-factor King test to determine if Canter should prevail. The court ruled that (1) BCBSMA did not act in bad faith during the remand because it had a board-certified neurologist and a board-certified orthopedic surgeon review Canter’s records and timely approved his request for coverage; (2) a fee award would have no deterrent effect because BCBSMA approved his claim and thus “there is no conduct to deter”; (3) Canter did not seek to benefit all plan participants and did not resolve a significant legal question; and (4) the relative merits were neutral because Canter prevailed on some issues (prejudgment interest) while he lost on others (enhanced interest under an unjust enrichment and restitution theory). (BCBSMA conceded the fifth factor, which was its ability to pay a fee award.) As a result, the court found that three of the five King factors weighed against Canter and thus denied his motion, emphasizing the “very limited success that Canter achieved on any issues beyond the coverage award itself[.]” The court thus “declines to award additional fees beyond the $204,771 it has already awarded. It therefore need not discuss the question of reasonableness.”
Breach of Fiduciary Duty
Third Circuit
In re Quest Diagnostics Inc. ERISA Litig., No. CV 20-07936 (JXN) (JRA), 2024 WL 4285163 (D.N.J. Sept. 25, 2024) (Judge Julien Xavier Neals). This is a putative class action by former employees of Quest Diagnostics who were participants in Quest’s 401(k) Savings Plan, a defined contribution plan that provides retirement benefits. They allege that defendants’ inclusion of certain funds in the plan breached their duty of prudence in monitoring and maintaining the plan. The plaintiffs were able to get past the pleadings in front of a different judge. However, the case was reassigned and defendants have now filed a motion for summary judgment, as well as a motion to exclude the testimony of plaintiffs’ expert witness. For their part, plaintiffs filed a motion for class certification and their own motion to exclude the testimony of defendants’ expert witness. The court addressed all of these motions in this order, and began with defendants’ summary judgment motion. The court agreed with defendants that Quest’s investment committee’s process for monitoring and managing the plan’s investments was prudent. The committee engaged independent advisors, met on a quarterly basis, circulated quarterly reports that addressed the funds’ investment returns as well as market conditions, and received annual training regarding fiduciary duties. The committee also proactively conducted “targeted analyses of the Plan’s investments, including searches for alternative funds as well as reviews of existing ones, and administered Requests for Proposals to solicit proposals from service providers.” The court rejected plaintiffs’ argument that the committee’s allegedly sparse meeting minutes showed imprudent behavior, ruling that they “do not fail to demonstrate a meaningful discussion regarding the Challenged Funds.” Furthermore, the committee’s alleged failure to adhere to the investment policy statement was insufficient because the IPS merely offered “guidelines” for consideration, and performance was only one of the factors to be considered. The court also ruled that the undisputed evidence showed that the committee closely monitored the performance of the funds at issue. While the committee eventually removed some of those funds from the plan, the court noted that the funds’ underperformance, by itself, did not create a triable issue of fact as to the committee’s conduct. Indeed, during the time period at issue, the funds occasionally outperformed their benchmarks. For these reasons, the court granted summary judgment to defendants on plaintiffs’ claim for breach of the duty of prudence, and on their derivative claims for failure to monitor fiduciaries and breach of trust. Because this ruling resulted in judgment for defendants, the remaining motions were denied as moot.
Sixth Circuit
Dukes v. AmerisourceBergen Corp., No. 3:23-CV-313-DJH-CHL, 2024 WL 4282309 (W.D. Ky. Sept. 24, 2024) (Judge David J. Hale). This is a putative class action alleging that defendants Amerisource, its board of directors, and its benefits committee breached their fiduciary duties under ERISA in their administration of the AmerisourceBergen Corporation Employee Investment Plan. Defendants moved to dismiss the entire complaint for failure to state a claim, and plaintiffs’ stable-value-fund claim for lack of standing. The court addressed the standing issue first. Defendants argued that plaintiffs suffered no injury relating to the stable value fund because the sole named plaintiff who invested in the fund, Mark Gale, did not do so until 2023, which was after the subpar results allegedly returned by the fund from 2017 to 2022. The court agreed, noting that “the complaint says nothing about the fund’s performance in 2023 and beyond, after Gale first invested.” The court thus granted defendants’ motion as to the stable value fund claims. The court then turned to the merits of plaintiffs’ claim that the benefits committee breached its duty of prudence by failing to monitor recordkeeping fees and ensure that the such fees were reasonable. Plaintiffs alleged that even though such fees are “essentially fungible” for “mega defined-contribution pension plans” like Amerisource’s, comparable plans paid substantially less. The court agreed with defendants that plaintiffs’ claims were potentially dicey because the Form 5500s on which plaintiffs relied showed that their comparison plans did not offer the same services as Amerisource’s. However, “these disparities are not fatal to their imprudence claim.” Because plaintiffs alleged that fees were commoditized for large plans like Amerisource’s, the discrepancy between services would not necessarily affect the cost of the fees. Defendants also attacked plaintiffs’ calculation of the fees at issue, but the court ruled that this was not an issue it was prepared to address at the pleading stage. Finally, defendants questioned the six comparator plans cited by plaintiffs, arguing that “there are thousands of plans in the marketplace, so an allegation that the Plan paid more than six others in 2018 alone says nothing about the reasonableness of the fees paid for the specific services the Plan received, let alone the process the Committee used to evaluate them.” However, the court ruled that plaintiffs’ comparators were sufficient, and noted that “Defendants cite no authority suggesting that there is a specific number of comparison plans that must be alleged to support an imprudence claim…and the Court is aware of none.” The court stated that “Defendants’ arguments as to Plaintiffs’ calculations, comparisons, and claims about the fungible nature of RKA services may prove persuasive later in the litigation,” but at this stage the court was required to resolve all inferences in plaintiffs’ favor. Because the court ruled that plaintiffs’ claim for breach of the duty of prudence was plausible, it also denied defendants’ motion regarding plaintiffs’ derivative claim for failure to monitor. Thus, the action will proceed, albeit on the recordkeeping claims only.
Tenth Circuit
Carimbocas v. TTEC Servs. Corp., No. 22-CV-02188-CNS-STV, 2024 WL 4290808 (D. Colo. Sept. 25, 2024) (Judge Charlotte N. Sweeney). The plaintiffs in this case are participants in defendant TTEC’s defined contribution 401(k) benefit plan. They allege that the defendants breached their fiduciary duties to plan participants by “allowing the Plan’s recordkeeper to charge participants excessive annual fees for administrative and recordkeeping services,” and “selecting investment funds that carried excessive management fees in the form of ‘expense ratios.’” Last year defendants filed a motion to dismiss which the court granted, ruling that plaintiffs did not adequately identify meaningful comparators against which the TTEC plan could be measured. (Your ERISA Watch covered this decision in its December 20, 2023 edition.) Plaintiffs amended their complaint twice, dropping their claims regarding the funds with excessive management fees, and electing to pursue only their recordkeeping fee claims. Defendants filed a new motion to dismiss. In this order the court stated, “In reviewing Plaintiffs’ second amended complaint, it would be an understatement to say that the new allegations leave something to be desired. The Court, however, cannot say that they fail to state a claim.” The court grudgingly accepted plaintiffs’ allegations that the Bricklayers and Trowel Trades’ International Retirement Savings Plan was of similar size and provided similar services, and thus denied defendants’ motion. However, the court warned that “Plaintiffs have now had three opportunities to properly plead their case, and they only identified one comparable plan.” Furthermore, defendants “raise a real concern over the prospect of a costly and timely discovery process when Plaintiffs’ comparison hinges on a single plan in a single year.” The court thus urged the parties “to work on a tailored discovery plan…that addresses the concern that Defendants – and the Court – have.”
Disability Benefit Claims
Third Circuit
Merchant v. First Unum Life Ins. Co., No. 1:22-CV-01506, 2024 WL 4278277 (M.D. Pa. Sept. 24, 2024) (Judge Yvette Kane). Plaintiff Amy Merchant worked for ITT Industries Holdings, Inc. as a Lean Technician, a medium work job which involved assembly of machine parts. She stopped working in 2020 due to abdominal pain and nausea. She also had a history of diabetes, hypertension, anxiety, and fear of contracting COVID. Merchant submitted a claim for benefits to the insurer of ITT’s long-term disability plan, defendant First Unum Life Insurance Company, which denied it. This action followed and the parties filed cross-motions for summary judgment. Pursuant to the parties’ agreement, the court reviewed Unum’s decision under the deferential arbitrary and capricious standard. Under this standard, the court ruled that Unum’s denial was reasonable. The court found that Merchant had insufficient support from her own doctors, her medical tests were mostly normal, Unum’s three reviewing physicians appropriately found that Merchant did not have significant restrictions and limitations, and the functional capacity evaluation on which Merchant relied was untrustworthy because it showed “submaximal effort” and was inconsistent with her presentation and self-reported abilities. As a result, the court ruled that Merchant “has not demonstrated that Defendant’s denial of long-term disability benefits was arbitrary and capricious,” denied her motion for summary judgment, and granted Unum’s.
Fourth Circuit
O’Connor v. The Lincoln Nat’l Life Ins. Co., No. 1:23-CV-343 (RDA/WEF), 2024 WL 4308093 (E.D. Va. Sept. 26, 2024) (Judge Rossie D. Alston, Jr.). Plaintiff Sarah O’Connor was a Regional Builder Sales Consultant at Wells Fargo & Company who contracted squamous cell carcinoma, which resulted in surgery and a subsequent infection. As a result, she was forced to stop working. She successfully applied for benefits from defendant The Lincoln National Life Insurance Company, the insurer of Wells Fargo’s employee long-term disability benefit plan, and remains on claim. The dispute in this action is over how much her monthly benefit should be; the parties have filed cross-motions for summary judgment on this issue. The court addressed the standard of review first. The language in the insurance policy granted Lincoln discretionary authority to determine benefit eligibility, but O’Connor contended that the policy was governed by Minnesota law, which has a law banning such grants of discretionary authority. However, the Minnesota law “applies to policies issued or renewed on or after January 1, 2016,” and the policy in this case was issued in 2010 and “has not been renewed.” Thus, “Minnesota law does not alter the conclusion here that the LTD Plan confers discretionary authority on Defendant and that abuse of discretion is the applicable standard of review.” On the merits, O’Connor argued that Lincoln used the wrong time period in determining what her earnings were. She contended that Lincoln was required recalculate her earnings on an ongoing basis every quarter, while Lincoln contended that the plan only required it to perform a “one-time calculation of LTD benefits using the Benefits Base quarterly earnings calculation completed in the quarter prior to one’s initial date of disability.” The court agreed with Lincoln’s interpretation, ruling that it “is reasonable and supported by substantial evidence.” The court found that Lincoln’s interpretation “ensures that an employee’s inability to earn commissions after becoming disabled does not affect the calculation of their LTD benefits,” “provides a logical and consistent application of the LTD Plan terms,” was consistent with the summary plan description, and “ensur[es] that eligible employees receive stable LTD benefits for the duration of the Maximum Benefit Period (if necessary), without the risk of a reduction in benefits due to an inability to earn commissions post-disability.” As a result, the court granted Lincoln’s summary judgment motion and denied O’Connor’s.
ERISA Preemption
First Circuit
Orabona v. Santander Bank, N.A., No. 1:23-CV-00299-MSM-PAS, 2024 WL 4289636 (D.R.I. Sept. 25, 2024) (Judge Mary S. McElroy). Plaintiff Lorna Orabona worked as a mortgage development officer for defendant Santander Bank. On January 21, 2022, Santander informed her that it was terminating her because she was forwarding company emails to her personal email. On February 1, 2022, Santander announced a company-wide reduction in force that would have included Orabona’s position. Orabona believes she is entitled to severance benefits as a result of the reduction in force and brought this action alleging several claims under Rhode Island state law. She contends that Santander “fraudulently advised [her] that she was terminated for cause and concealed the planned large-scal[e] layoff to deprive her of any eligibility of benefits, including but not limited to, severance.” Santander removed the case to federal court under diversity jurisdiction. The court denied Santander’s ensuing motion to dismiss on the issue of ERISA preemption, and permitted the parties to conduct discovery regarding whether ERISA applied to the severance plan. After discovery, Orabona filed an amended complaint that again alleged only state law claims. Santander renewed its motion to dismiss and also sought summary judgment. The court agreed with Santander that Orabona’s claims for negligent and fraudulent misrepresentation were preempted because they related to the severance plan and the remedy sought was plan benefits. As for Orabona’s claims for wrongful termination, breach of implied employment contract, and breach of the implied covenant of good faith and fair dealing, the court noted that Orabona sought payment of severance benefits as part of these claims as well and thus they were also preempted. As a result, the court granted Santander’s motion for summary judgment, and also denied Orabona’s request for leave to amend, noting that she had already had one chance to amend her complaint and had not indicated how she would amend her complaint if given the chance.
Exhaustion of Administrative Remedies
Second Circuit
Azzarmi v. Neubauer, No. 20-CV-9155 (KMK), 2024 WL 4275589 (S.D.N.Y. Sept. 24, 2024) (Judge Kenneth M. Karas). Plaintiff Aasir Azzarmi is a former Delta Airlines flight attendant who has brought this pro se action against numerous defendants alleging numerous causes of action, both state and federal, stemming in large part from a workers compensation claim he filed while employed by Delta. Azzarmi’s third amended complaint prompted three separate motions to dismiss which were adjudicated in this order. At the outset, the court noted that Azzarmi “has a vast amount of civil litigation experience in federal court,” including an “extensive history of litigating claims across the country, including with exceptionally dense tomes for pleadings and motions.” The court further noted criticisms of Azzarmi by other courts, including rulings deeming Azzarmi to be a “vexatious litigant.” As a result, the court stated that it would not give Azzarmi the solicitude pro se plaintiffs are typically entitled to receive and would treat him like any other litigant. As for the merits, Azzarmi’s complaint contained eighteen claims, the vast majority of which are beyond the scope of this humble newsletter. On his ERISA claims against claim administrator Sedgwick Claims Management Services and the Delta Family Care Disability and Survivorship Plan, the court questioned whether Sedgwick was even subject to liability under ERISA. However, even assuming that it was, the court ruled that Azzarmi’s claims failed because he “has raised no allegation even remotely suggesting that [he] exhausted available administrative remedies.” The court acknowledged that failure to exhaust was an affirmative defense, but “courts have nevertheless dismissed claims where plaintiffs fail to plead, or plead only in conclusory fashion, that they have exhausted their administrative remedies,” which was the case here. In the end, the court only allowed one claim to proceed, Azzarmi’s 42 U.S.C. § 1981 discrimination and retaliation claim against Sedgwick.
Medical Benefit Claims
Tenth Circuit
C.J. v. United Healthcare Ins. Co., No. 2:22-CV-00092, 2024 WL 4279007 (D. Utah Sept. 24, 2024) (Judge David Barlow). Plaintiff C.J. is a participant in an employee medical benefit plan and her teenage daughter, F.R., is a plan beneficiary. F.R. was diagnosed with obsessive-compulsive disorder and body dysmorphic disorder and engaged in self-harm such as making cuts in her legs several inches long. After F.R.’s father committed suicide, she began threatening to do the same. C.J. found sharp items in F.R.’s room even after she had hidden them, F.R. became increasingly angry and physical, and she stopped going to school regularly. Eventually F.R. was admitted to New Haven, a residential treatment center in Utah, and C.J. began submitting claims for her treatment to United Healthcare, which approved them. However, defendant Cigna Health and Life Insurance Company took over the plan’s administration on July 1, 2019, and immediately denied coverage after that date, contending that F.R.’s residential treatment was not medically necessary. Plaintiffs brought this action, alleging two claims for relief: one for recovery of benefits under 29 U.S.C. § 1132(a)(1)(B), and the second for violation of the Mental Health Parity and Addiction Equity Act (“Parity Act”) under 29 U.S.C. § 1132(a)(3). The parties filed cross-motions for summary judgment which were decided in this order under the arbitrary and capricious standard of review. The court agreed with plaintiffs that Cigna’s denial letters were “conclusory” and that Cigna “failed to grapple with the specific facts that could have justified awarding benefits just as inadequately as it failed to address the medical opinions that may have justified the denial of benefits.” Cigna’s letters did not reference policy terms, did not specifically respond to plaintiffs’ arguments, and generally “failed to engage with the record.” In its motion, Cigna made arguments regarding F.R.’s medical necessity, and the court accepted that “[s]ome of these arguments might well have merit.” However, “they provided none of these reasons in [the] second denial letter,” which “instead simply reiterat[ed] without explanation or citation to the record that ‘[l]ess restrictive levels of care were available for safe and effective treatment.’” As a result, the court ruled that plaintiffs did not receive a full and fair review, Cigna did not provide plaintiffs with a “meaningful dialogue,” and “[a]ccordingly, Defendants’ denial of coverage was arbitrary and capricious.” As for a remedy, the court declined to award benefits because “having reviewed the evidence, the court cannot say the ‘record clearly shows’ coverage is warranted… Remand is thus the proper remedy.” The court then turned to plaintiffs’ Parity Act claim and ruled that “because the court has concluded that remand is the appropriate remedy for the denial of Plaintiffs’ benefits, the MHPAEA claim is moot.”
J.S. v. Blue Cross Blue Shield of Illinois, No. 2:22-CV-00480, 2024 WL 4308925 (D. Utah Sept. 26, 2024) (Judge David Barlow). Plaintiff J.S. is a participant in an employee medical benefit plan and plaintiff S.S. is a beneficiary. They sued defendant Blue Cross Blue Shield of Illinois, alleging that BCBSIL unlawfully failed to pay benefits for S.S.’s treatment at Sunrise, a residential treatment facility in Utah, and violated the Mental Health Parity and Addiction Equity Act. BCBSIL filed a motion to dismiss, which the court granted in March of 2023, ruling that (1) Sunrise was not a covered residential treatment center under the plan because it did not have 24-hour onsite nursing, and (2) plaintiffs had not alleged a disparity in treatment coverage under the Parity Act because analogous levels of medical or surgical care in the plan also required 24-hour nursing. Plaintiffs filed an amended complaint to address these issues, which prompted another motion to dismiss from BCBSIL. The court tackled the Parity Act claim first because plaintiffs “concede that without their MHPAEA cause of action, their ERISA cause of action likely fails.” The court accepted plaintiffs’ proposed Parity Act test and agreed that skilled nursing was the medical/surgical service most analogous to the mental health treatment in this case. The court then addressed whether the 24-hour nursing requirement was either a facial violation or an as-applied violation. The court ruled that there was “no plausible facial violation of the Parity Act” because both residential treatment and skilled nursing required 24-hour onsite nursing. Plaintiffs argued that the 24-hour requirement was imposed on skilled nursing by federal regulations, whereas it was imposed on residential treatment by BCBSIL in the plan terms, but the court deemed this a distinction without a difference because in the end both were treated the same. The court also ruled that whether the 24-hour requirement was consistent with generally accepted standards of care was irrelevant for the purposes of the Parity Act. As for plaintiffs’ as-applied challenge, the court stated that plaintiffs “rely on the same allegations for their as-applied challenge as their facial challenge,” and did “not plausibly plead that BCBSIL applies a facially neutral plan term (the 24-hour nursing care requirement) differently for RTC and SNF.” Plaintiffs contended that “the application of the 24-hour nursing requirement disproportionately limits RTC care and increases costs,” but the court ruled that the Parity Act “requires parity in treatment coverage, not in possible effects on the number of facilities that might be covered.” Because plaintiffs could not convince the court that there was a Parity Act violation, their claim for benefits failed as well because it was undisputed that Sunrise did not provide 24-hour nursing as required by the plan. The court thus granted BCBSIL’s motion and dismissed the case with prejudice.
P.M. v. United Healthcare Ins. Co., No. 2:22-CV-00507-JNP-CMR, 2024 WL 4267323 (D. Utah Sept. 23, 2024) (Judge Jill N. Parrish). The plaintiffs in this case are P.M., a participant in an ERISA-governed medical benefit plan, and his son, W.M., a beneficiary under the plan. W.M. underwent 24-hour residential treatment at Innercept, a facility in Utah, but the insurer of the plan, defendant United Healthcare, only paid for part of his treatment and this action ensued. Plaintiffs brought two claims, one for recovery of benefits under 29 U.S.C. § 1132(a)(1)(B), and the second for violation of the Mental Health Parity and Addiction Equity Act (“Parity Act”) under 29 U.S.C. § 1132(a)(3). The parties filed cross-motions for summary judgment which the court adjudicated in this order. The court evaluated United’s decision under de novo review because the policy insuring the plan was issued in Illinois, whose insurance laws prohibit grants of discretionary authority. At the outset, the court noted that United’s denial letters “only provided Plaintiffs with conclusory statements and made no reference to supporting evidence. In doing so, Defendants clearly violated ERISA’s implementing regulations requiring a ‘full and fair review.’” Defendants thus “handicapped their own argument for the court to consider.” The court urged defendants “to meaningfully engage with claimants in the future and develop the record beyond simple conclusory statements.” The court then reviewed the record and determined that it showed that “W.M. did not understand the need for medication or treatment for his mental health disorders and continued to exhibit a high risk of self-harm and harm to others. Furthermore, Plaintiffs offered evidence that W.M. had previously attempted treatment at a lower level of care and failed to see results. For these reasons, multiple medical professionals recommended W.M. continue the level of care he was receiving at Innercept. As such, Plaintiffs claim for benefits is supported by a preponderance of the evidence.” In doing so, the court cited evidence showing that W.M. was impulsive, placed people at risk due to his “bizarre, disorganized behavior,” had little insight into his illness, had run away from treatment several times, and had to be restrained by police. The court thus granted plaintiffs’ summary judgment motion, and denied defendants’, on plaintiffs’ claim for plan benefits. The court declined to address plaintiffs’ Parity Act claim on mootness grounds because they had prevailed on their benefits claim. As for a remedy, the court ruled that remand was unnecessary and ordered defendants to pay benefits for the time period encompassed by the record.
Plan Status
Fourth Circuit
Young v. Western-Southern Agency, Inc., No. 2:23-CV-00764, 2024 WL 4255062 (S.D. W. Va. Sept. 20, 2024) (Judge Thomas E. Johnston). Plaintiff Randy Young had been employed by defendants for almost thirteen years when he was terminated in 2019. Upon termination, he requested benefits under defendants’ Long-Term Incentive Retention Plan, in which he was a participant. Young contended that he was fully vested in the plan, but defendants responded that because he had been involuntarily terminated, he had forfeited all his plan benefits. Young brought this action in West Virginia state court alleging numerous causes of action. The parties went to arbitration but in the end the arbitrator was unable to resolve all the issues, and Young amended his complaint so that only one claim remained: a claim for vested plan benefits under the West Virginia Wage and Payment Collection Act. Defendants removed the case to federal court based on ERISA preemption and filed a motion to dismiss. At the same time, Young filed a motion to remand. In this order the court agreed with defendants that under ERISA the plan was “established or maintained by an employer” because defendants had set forth qualifications and procedures for receiving benefits, and had set aside money to fund the plan. The court also agreed that the plan was an “employee pension benefit plan” because the plan “defers compensation or provides retirement income” by paying benefits at the time employment terminates. Young argued that defendants had incorrectly characterized the plan as a “top hat” plan, but the court ruled that this issue was premature. More importantly, the issue was irrelevant for the purposes of the pending motions because the plan was governed by ERISA regardless of whether it was a top hat plan. Because the plan was an ERISA plan, the court ruled that Young’s state law claim was completely preempted. Thus, it denied Young’s motion to remand, denied defendants’ motion to dismiss without prejudice, and gave Young leave to amend his complaint “to fit within the scope of § 502(a).”
Pleading Issues & Procedure
Second Circuit
Healthcare Justice Coalition DE Corp. v. Cigna Health & Life Ins. Co., No. 3:23-CV-1689 (JAM), 2024 WL 4264391 (D. Conn. Sept. 23, 2024) (Judge Jeffrey Alker Meyer). Plaintiff Healthcare Justice Coalition is “in the business of buying and recovering balances owed by healthcare insurers for services rendered by doctors and other medical professionals.” In this action HJC alleges that it purchased accounts from emergency physician services relating to patients insured by defendant Cigna. It is suing Cigna for violation of the Connecticut Unfair Trade Practices Act as well as for unjust enrichment and quantum meruit. Cigna filed a motion to dismiss on several grounds, including lack of standing and ERISA preemption. The court ruled that HJC had constitutional standing as an assignee of the emergency physicians, and rejected Cigna’s argument about “prudential standing,” questioning the doctrine’s “continuing validity” after the Supreme Court’s decision in Lexmark v. Static Control Components, Inc., 572 U.S. 118 (2014). However, the court agreed with Cigna that the complaint violated Federal Rule of Civil Procedure 8, ruling that “the complaint lacks many details that prevent [Cigna] from having a fair understanding of HJC’s claims and knowing whether there is a proper legal basis for recovery.” Specifically, the complaint did not identify the dates of the services at issue, or clarify which services at which hospitals were encompassed by the allegations. As for ERISA, “[t]he complaint also fails to make clear whether HJC seeks to assert rights to payment to NES that stem from the terms of Cigna health care plans.” HJC contended in its complaint that it “does not assert any derivative claim for benefits due and owing to any beneficiary or participant of an ERISA-governed health plan,” but other parts of its complaint arguably sought recovery under just such plans. As a result, the court granted Cigna’s motion to dismiss, and allowed HJC leave to amend in order to “allege additional facts that give fair notice of the nature and scope of its claims and its right to relief.”
Sixth Circuit
Secretary of Labor v. Macy’s, Inc., No. 1:17-CV-541, 2024 WL 4302093 (S.D. Ohio Sept. 26, 2024) (Judge Jeffery P. Hopkins). This is a seven-year-old action by the Department of Labor against Macy’s alleging that Macy’s’ Tobacco Surcharge Wellness Program runs afoul of ERISA. The program assesses a premium surcharge on employees enrolled in Macy’s medical benefit plan who have used tobacco during the previous six months, and also offers access to tobacco cessation programs. The DOL contends that this is a discriminatory wellness program in violation of 29 U.S.C. § 1182 and thus a breach of fiduciary duty under 29 U.S.C. § 1104. In 2021, a different judge granted Macy’s motion to dismiss the action but allowed the DOL to amend its complaint. Macy’s motion to dismiss the DOL’s amended complaint is still pending. Meanwhile, last term the Supreme Court announced the death of the Chevron doctrine in its decision in Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024). Macy’s filed a motion requesting leave to supplement the record so it could develop an argument based on Loper Bright, and the DOL opposed it. The DOL complained that Macy’s asserted its new argument too late and that the argument did not affect the central issue of the case, which was whether Macy’s had complied with the regulation, not whether the regulation itself was valid. The court declined to wade into the merits of the case or the Loper Bright argument, and instead denied Macy’s pending motion to dismiss, giving it leave to file a renewed one. This court stated that this procedure “will afford all parties – and the Court – the opportunity to fully and fairly address the significant issues presented in this litigation.”
Provider Claims
Second Circuit
Rowe Plastic Surgery of New Jersey, L.L.C. v. United Healthcare, No. 23-CV-4352 (AMD) (JAM), 2024 WL 4309230 (E.D.N.Y. Sept. 26, 2024) (Judge Ann M. Donnelly). The plaintiffs, two plastic surgery practices, filed this action against two United Healthcare entities for breach of contract, unjust enrichment, promissory estoppel, and fraudulent inducement after the insurer reimbursed plaintiffs for $1,334.38 for a breast reduction surgery, far less than the $300,000 they billed. United filed a motion to dismiss for failure to state a claim, including an argument that plaintiffs’ claims were preempted by ERISA because the patient at issue was insured by an ERISA-governed employee benefit plan. However, the court noted that the complaint did not mention ERISA or allege that the plan was governed by ERISA, and the telephone calls between plaintiffs and United regarding the surgery did not mention any employee benefit plan. As a result, the court ruled that “it would be premature for the Court to engage in a preemption analysis.” The court went on to address plaintiffs’ state law claims, ultimately concluding that (1) United’s representations during the telephone calls did not form a contract or support a claim for promissory estoppel, (2) United was not unjustly enriched because the surgery was not performed at United’s request and the patient, not United, received the benefit, and (3) plaintiffs did not sufficiently allege how United’s communications amounted to fraud. The court thus granted United’s motion to dismiss in its entirety.
Venue
Tenth Circuit
C.B. v. Optum, No. 2:23-CV-00687 JNP, 2024 WL 4267383 (D. Utah Sept. 23, 2024) (Judge Jill N. Parrish). This is an action for benefits under an ERISA-governed medical benefit plan arising from treatment at two Utah-based facilities. Plaintiff C.B. resides in Wisconsin, plaintiff A.B. resides in Missouri, and the plan is sponsored by a company headquartered in Washington, D.C. The insurance defendants are headquartered in Connecticut and California. Defendants filed a motion to transfer venue, contending that the action should proceed not in Utah, but in the United States District Court for the District of Columbia. The court agreed. Plaintiffs argued that the treatment at issue occurred in Utah and that defendant United Healthcare had an appeals and claim processing facility in Utah, and thus venue was proper there. The court agreed that the case could continue in Utah, but ruled that the District of Columbia was “a more appropriate forum.” The court noted that a plaintiff’s choice of forum is typically entitled to deference, but “A.B.’s treatment in Utah provides the only connection to this forum. None of the parties reside in Utah. The Plan was not administered in Utah. The alleged breaches did not occur in Utah. The decision to deny benefits was not made in Utah. Under these circumstances, and in accord with persuasive and applicable authority, Plaintiffs’ choice of forum is entitled to little weight and is not controlling.” The court accepted that defendants might have some business operations in Utah, but “none of these contacts has a material connection to the facts of this case and the district where the Plan is administered is therefore a more appropriate forum.” The court further found that “the relevant witnesses and documents involved in administering the Plan are located where the Plan was administered in Washington D.C.,” and “the relevant witnesses and documents involved in denying Plaintiffs’ claims are also located in Washington D.C.” Finally, judgment would be easier to enforce where the plan was administered, and the District of Columbia has a less congested docket than the District of Utah, which also weighed in favor of transfer. As a result, the court granted defendants’ motion and the case will proceed in the District of Columbia.
Withdrawal Liability & Unpaid Contributions
Sixth Circuit
Local No. 499, Bd. of Trustees of Shopmen’s Pension Plan v. Art Iron, Inc., No. 22-3925, __ F.4th __, 2024 WL 4297674 (6th Cir. Sept. 26, 2024) (Before Circuit Judges Boggs, Cook, and Nalbandian). The Shopmen’s Local 499 Pension Plan, a multiemployer employee benefit plan, brought this action against Art Iron, Inc., a structural steel fabricator and a major participating employer in the plan. Due to financial difficulties, Art Iron began winding down its business in 2017 and ran into legal trouble with the government and its creditors. In 2018 the plan issued a demand to Art Iron and its sole shareholder, Robert Schlatter, for withdrawal liability in the amount of $1,185,785. They did not pay and this action ensued. In the district court, Art Iron’s liability was not disputed, so “the only issue before the district court was whether Robert Schlatter…and Mary Schlatter, his wife, were jointly and severally liable for Art Iron’s withdrawal liability.” The plan argued that the Schlatters were personally liable because “each ran a trade or business under ‘common control’ with Art Iron.” The district court agreed, entered judgment against both of the Schlatters, and they appealed. In this published opinion, the Sixth Circuit affirmed as to Robert but reversed as to Mary. Relying on Commissioner v. Groetzinger, 480 U.S. 23 (1987), in which the Supreme Court discussed what “trade or business” means under federal tax laws, the Sixth Circuit ruled, “The text of ERISA supports looking to the ‘continuity and regularity’ of the activity and whether the individual’s ‘primary purpose for engaging in the activity’ was ‘for income or profit.’” The court agreed with the district court that Robert’s consulting business, in which he received payment “for income or profit” as an independent contractor for advising Art Iron over the course of several years, fit this description. However, Mary’s jewelry business did not qualify. She had no income in 2017 and a “minimal level of engagement” in that year. Because Mary “was not making and selling jewelry with continuity and regularity in 2017, and therefore did not operate a ‘trade or business’ that could be under common control with Art Iron,” she was “not personally liable for Art Iron’s withdrawal liability.”
Tenth Circuit
Country Carpet, Inc. v. Kansas Bld’g Trades Open End Health & Welfare Trust Fund, No. 23-4101-DDC-BGS, 2024 WL 4286254 (D. Kan. Sept. 25, 2024) (Judge Daniel D. Crabtree). This unpaid contributions case is unusual because it involves an employer suing a union and its multiemployer employee benefit trust fund instead of the other way around. Plaintiff Country Carpet argues that it should not have to pay assessments to the fund for two of its employees who left the union. It brought this action in Kansas state court alleging two causes of action, one for declaratory relief and one for unjust enrichment. Defendants removed the case to federal court, asserting that Country Carpet’s claims were preempted by the Labor Management Relations Act (LMRA) and ERISA. Country Carpet disagreed and filed a motion to remand, while defendants filed a motion to dismiss. Both motions were adjudicated in this order. The court agreed that the LMRA preempted most of Country Carpet’s claims because those claims required the court to interpret the collective bargaining agreement at issue, which was exclusively governed by the LMRA. Country Carpet argued that part of its claims was predicated on right-to-work provisions in Kansas law, but the court ruled that this was insufficient: “Whether a claim turns on interpretation of a CBA…is what’s dispositive.” The court’s answer was different under ERISA. The court ruled that Country Carpet’s claims were not preempted by ERISA because “ERISA § 502 doesn’t provide a cause of action for employers.” Country Carpet cited a Ninth Circuit case which “held that an employer can bring suit for repayment of overcontributions under ERISA § 502.” However, the court noted that “[o]ur Circuit hasn’t decided this issue,” and “the weight of circuit authority counsels that employers can’t bring a cause of action under ERISA § 502.” The court then addressed the merits of Country Carpet’s claims and ruled that it could not state a claim under the LMRA because it did not allege that defendants had violated any CBA terms. The court thus denied Country Carpet’s motion to remand, granted defendants’ motion to dismiss in part, and declined to exercise its jurisdiction over the state law issues that were left.