Unlike employee contributions, employer contributions to 401(k) plans do not immediately vest, but instead do so under plan and ERISA vesting provisions, generally after three to five years of service with the employer. What happens to these contributions when employees leave covered employment before that time is at the center of numerous recently-filed lawsuits, including our three featured Cases of the Week.

The most meaty of these is Rodriguez v. Intuit Inc., No. 23-cv-05053-PCP, __ F. Supp. 3d __, 2024 WL 3755367 (N.D. Cal. Aug. 12, 2024) (Judge P. Casey Pitts). In this case, plaintiff Deborah Rodriguez brought a putative class action against Intuit Inc., her former employer and sponsor of the 401(k) plan in which she is a participant, and against the administrative committee that was the named plan administrator. The plan expressly granted Intuit discretionary authority with respect to management of forfeited nonvested amounts but also specified that such amounts could be used in certain circumstances to pay plan expenses, and in other circumstances could be applied towards Intuit’s safe harbor contributions, matching contributions, and/or profit sharing contributions.

Ms. Rodriguez alleged that defendants violated their fiduciary duties of prudence and loyalty and ERISA’s anti-inurement provision, and engaged in prohibited transactions, by using nearly all of the forfeited plan assets during the class period to reduce Intuit’s matching contributions. She alleged that defendants did so to benefit Intuit, rather than using these amounts to pay plan expenses, which would have benefited the plan participants. Plaintiffs also asserted but did not press a claim solely against Intuit for failure to monitor the committee.

Other than the failure to monitor claim, the district court held that Ms. Rodriguez adequately stated each count of her complaint and thus denied defendants’ motion to dismiss.

As an initial matter, the court held that Intuit functioned as a fiduciary by exercising discretionary authority with respect to whether and when the forfeitures could be used for contributions and that this was fiduciary, not plan sponsor, activity. 

The court then concluded that Ms. Rodriguez adequately alleged that defendants breached their duties of loyalty by using forfeitures in a way that saved Intuit millions of dollars a year in required contributions, concluding that plaintiff plausibly alleged that the plan did not authorize defendants to use the forfeitures in this manner. Furthermore, the court concluded that even if the plan had authorized defendants to act in this manner, this would not excuse them from meeting their duty of loyalty given that plaintiff also plausibly alleged that it did not benefit plan participants to use the forfeited amounts to meet Intuit’s contribution requirements rather than to defray plan expenses.

For similar reasons, the court concluded that plaintiff also adequately alleged that defendants did not act prudently because “Ms. Rodriguez has plausibly alleged not only that Intuit did not in fact comply with the terms of the Plan Document but also that a prudent employer in this particular context would have at minimum engaged in a ‘reasoned and impartial decision-making process’ considering ‘all relevant factors’ before determining how to use the forfeited funds in the best interest of the participants and beneficiaries.”

The court had no problem concluding that plaintiff plausibly alleged that the plan as a whole was damaged by the challenged conduct. Likewise, the court easily concluded that plaintiff stated a claim under ERISA’s anti-inurement provision through allegations that Intuit received millions of dollars in “debt forgiveness” by “electing to use the plan assets as a substitute for the Company’s own future contributions to the plan.”

The court next agreed that plaintiff plausibly alleged that defendants’ use of plan assets as an offset for future employer contributions was a use of plan assets for the benefit of Intuit, a party in interest, in violation of ERISA Sections 406(a)(1) and (b)(1), 20 U.S.C. § 1106(a)(1) and (b)(1). In so holding, the court reiterated that “Ms. Rodriguez has plausibly pleaded that Intuit acted as fiduciary and not a settlor with respect to the challenged conduct.”

The court likewise held that Intuit’s “reallocation of undisputed plan assets to reduce its own matching contribution” was a “transaction” of the kind that ERISA prohibits and that plaintiff’s allegations that “Intuit’s reallocation of forfeitures created a benefit to it to the detriment of the Plan by reducing the funds available to participants and for investment” were “sufficient to support a plausible inference that Intuit engaged in self-dealing.”

The same day the district court entered its decision in Rodriguez, a district court in Southern California denied reconsideration of its decision issued in May of this year denying a similar motion to dismiss by fiduciaries of the Qualcomm Inc. 401(k) plan in a similar suit challenging the use of forfeited contributions to offset employer contribution requirements. Perez-Cruet v. Qualcomm Inc., No. 23-cv-1890-BEN (MMP), 2024 WL 3798391 (S.D. Cal. Aug. 12, 2024) (Judge Roger T. Benitez).

Your ERISA Watch covered the May decision denying the motion to dismiss in our June 5, 2024 newsletter. Defendants then moved for reconsideration. As in their motion to dismiss, defendants once again directed the court to IRS regulation 26 C.F.R. § 1.401-7(a) and to a proposed Treasury Department guidance. They argued that their use of forfeited employer contributions was in compliance with the IRS rules and thus shielded from ERISA fiduciary liability. Defendants also pointed to a decision from the Northern District of California dismissing a similar case, Hutchins v. HP Inc., No. 23-cv-5875-BLF (N.D. Cal. June 17, 2024). The court was not persuaded, however. It noted that defendants were mostly reasserting previously presented arguments and facts that it had already considered and rejected. The court also found Hutchins inapposite in that ERISA breach of fiduciary duty claims are “inherently fact specific,” and the Hutchins court itself “found that its plaintiffs might be able to plausibly allege a claim based on more particularized facts or special circumstances and granted leave to amend.” Finally, the court rejected defendants’ motion to certify an interlocutory appeal, concluding that such an appeal would likely slow, not advance, “the ultimate termination of the litigation,” and noting that it was ready to resolve the case on its merits.

In the third forfeiture decision this week, a district court in Kansas granted a motion by plan participants to amend their ERISA plan mismanagement complaint to assert new causes of action related to their employer’s forfeited contributions practices. Middleton v. Amentum Gov’t Servs. Parent Holdings, No. 23-2456-EFM-BGS, 2024 WL 3826111 (D. Kan. Aug. 14, 2024) (Magistrate Judge Brooks G. Severson).

As an initial matter, the court spoke of the well-settled principle that courts should freely grant leave to amend “when justice so requires.” The court then considered and rejected each of the defendants’ three arguments opposing amendment. First, the court found that plaintiffs had not unduly delayed their proposed amendment because they filed their motion for leave to amend just one month after the first federal district court recognized such claims in Perez-Cruet. Second, the court determined that allowing plaintiffs to amend would not subject defendants to any prejudice beyond that inherent to all opposing parties in all civil litigation. Third, upon reviewing defendants’ futility arguments, the court found that it would be more expedient and efficient “to allow Plaintiff to file their proposed Third Amended Class Action Complaint,” and allow defendants the opportunity to challenge the sufficiency of the claims through a dispositive Rule 12(b)(6) motion, than to deny plaintiffs’ motion to amend. As did the court in Perez-Cruet, the district court in Kansas thus expressed a desire to address the case on its merits, and therefore permitted plaintiffs to amend their complaint.

Your ERISA Watch sees these recently-asserted forfeiture claims as a fascinating new trend in ERISA litigation. Will these cases continue to gain traction, or will they stall out? Stay tuned to Your ERISA Watch for further updates.

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

Breach of Fiduciary Duty

Second Circuit

Collins v. Northeast Grocery, Inc., No. 5:24-cv-80 (DNH/MJK), 2024 WL 3829636 (N.D.N.Y. Aug. 15, 2024) (Judge David N. Hurd). Four former employees of the grocery stores Tops Market and Price Chopper Supermarkets have sued the fiduciaries of the Northeast Grocery 401(k) Plan for plan mismanagement, breaches of fiduciary duties, and violations of ERISA. Plaintiffs asserted seven causes of action, including claims of disloyalty, imprudence, failure to monitor, and prohibited transactions. Defendants moved to dismiss the complaint for failure to state claims, and for lack of Article III standing. In a decision that was all over the place, the court identified problems with standing and problems with the sufficiency of the allegations. The court led with its analysis of the motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1), which it granted in part, dismissing the claims pertaining to funds the named plaintiffs did not personally invest in. Although the court acknowledged the “Second Circuit has not definitively resolved the issue of whether and to what extent participants of a defined contribution plan must demonstrate individual harm in order to bring claims concerning funds they did not personally invest it,” it opted to follow the approach adopted by “the majority of other courts,” which requires participants to allege “an injury to their own individual accounts by virtue of investing in at least one imprudent fund[.]” However, any claims that survived scrutiny under Federal Rule of Civil Procedure 12(b)(1), were ultimately dismissed under the court’s Federal Rule of Civil Procedure 12(b)(6) analysis. There, the court found that the complaint’s allegations were cursory and insufficient, that plaintiffs provided inadequate benchmarks, that they failed to allege underperformance that was sustained or substantial, and that the information included about the “virtually identical” services provided was overly vague. Consequently, the court dismissed the action in its entirety. Finally, the court denied leave to amend. “The Court recognizes that this is plaintiffs’ first attempt at setting forth these claims and courts should freely give leave to amend when justice so requires. Even so, amendment in this instance would be futile.” Because plaintiffs “simply request leave to file an amended complaint in their opposition memorandum without setting forth anything to suggest that they could cure the deficiencies identified here,” the court held “there is no indication that amendment is warranted.” Thus, plaintiffs’ request for leave to file an amended complaint was denied, and defendants’ motion to dismiss the entirety of the complaint was granted. 

Fifth Circuit

LeBoeuf v. Entergy Corp., No. 23-6257, 2024 WL 3742690 (E.D. La. Aug. 9, 2024) (Judge Ivan L.R. Lemelle). Plaintiffs are the four surviving children of decedent Alvin Martinez, who were named the beneficiaries of his ERISA-governed defined contribution pension plan after his first wife died. The adult children were denied pension benefits because their father eventually remarried and failed to ask his second wife to execute a surviving spouse waiver as to the savings plan’s beneficiary. In this action, the surviving children assert claims of fiduciary breach against the Entergy Corporation, as plan sponsor, the Entergy Corporation Employee Benefits Committee, as plan administrator and claims administrator, and T. Rowe Price Trust Company, as plan trustee. The Entergy defendants and T. Rowe Price separately moved to dismiss the complaint. The court granted the motions to dismiss in this order. First, the court determined that only the Committee exercised fiduciary functions over the plan meaning Entergy Corporation and T. Rowe Price were not fiduciaries, and that plaintiffs could not sustain fiduciary breach claims against them. Interestingly, the court disagreed with defendants that the complaint was actually alleging a benefits claim in disguise and that the relief plaintiff sought is payment of benefits under the plan. The Martinez family maintained that they cannot sustain a claim for benefits because the plan was required by law to distribute the 401(k) proceeds to the surviving spouse absent a spousal waiver. They contend that the matter at issue is defendants’ failure to communicate the need for a spousal waiver in order to maintain the beneficiary designation. And the court agreed. It noted that plaintiffs were seeking equitable relief through a surcharge in the form of money damages that was “not merely duplicative of their administrative denial of benefits.” Accordingly, the court found that plaintiffs did “not merely present a benefits claim in disguise, but a breach of fiduciary duty in its own right.” However, the court concluded that plaintiffs’ fiduciary breach claim nevertheless failed “as a matter of law.” The court concluded that it was clear from the complaint and from the uncontested documents attached to the motions to dismiss, that the “Committee accurately relayed ERISA provisions regarding legal beneficiaries and election of spousal waivers,” and that the Committee therefore met ERISA’s disclosure requirements. Thus, the court found that the children failed to state a claim for breach of fiduciary duty. Finally, the court expressed that it found amendment futile, and therefore dismissed the action with prejudice.

Seventh Circuit

Luckett v. Wintrust Fin. Corp., No. 22-cv-03968, 2024 WL 3823175 (N.D. Ill. Aug. 14, 2024) (Judge Mary M. Rowland). This putative class action involves the Wintrust Financial Corporation Retirement Savings Plan and the selection of the BlackRock LifePath Index target date funds (“TDFs”) in the plan’s investment lineup. According to plaintiff Lynetta Luckett the BlackRock TDFs suffered from sustained underperformance and the selection and retention of them constituted breaches of the fiduciaries’ duties. Ms. Luckett has not had great success convincing the court of the plausibility of her claims. Last July, Your ERISA Watch covered the court’s decision granting Wintrust’s motion to dismiss the original complaint. The motion to dismiss was granted with leave to amend, and Ms. Luckett filed an amended complaint with additional allegations and comparisons. Wintrust again moved to dismiss the complaint. The court again granted the motion to dismiss, this time with prejudice. As before, the court agreed with Wintrust that none of the three funds Ms. Luckett supplied as comparators, “the T. Row TDF, the Vanguard TDF, and the S&P target date index funds,” were adequate benchmarks, as they had important “substantive differences,” from the BlackRock TDFs including different glide path strategies, and management styles. The court was unmoved by the fact that the fiduciaries themselves compared the BlackRock TDF suite to these funds before deciding to select it. “Luckett thus argues that the Committee’s conduct is something like a concession; that is, the Committee’s act of comparing these funds means that the Court can also treat the funds as meaningful benchmarks.” But the court said this was not so. The court stated it was reluctant to punish the fiduciaries through civil liability for engaging in prudent due diligence. Ms. Luckett’s selected comparators, thus remained for the court, oranges against which an apple should not be subjected to scrutiny. Moreover, the court faulted the complaint’s allegations of the alleged underperformance itself, both its short duration and the relatively mild extent of it – less than 3% during any given quarter. This lack of severity was suggestive to the court that Wintrust did not breach its fiduciary duties, especially given the fact that ERISA does not require fiduciaries to pick the top-performing fund. The court was also doubtful “that the Committee had tunnel vision toward the fund’s glide path,” and rejected Ms. Luckett’s idea that the fiduciaries did not properly consider the needs of the plan participants. Finally, the court took the time to express that even assuming the BlackRock TDFs were the “wrong choice,” that that in and of itself does not show that the fiduciary decision-making process was deficient under ERISA. For these reasons, the court found that the complaint did not plausibly allege claims of fiduciary wrongdoing and therefore dismissed them all, without leave to amend, terminating the case.

Ninth Circuit

Su v. Bensen, No. CV-19-03178-PHX-ROS, 2024 WL 3825085 (D. Ariz. Aug. 15, 2024) (Judge Roslyn O. Silver). If you wanted to sell someone on Employee Stock Ownership Plans (“ESOPs”) you might tout how they are a unique employee benefit that gives workers a stake in a company through tax-deferred stock shares. But if you wanted to do the opposite, and warn someone about the many potential problems of ESOPs, you might point them towards this decision. Acting Secretary of Labor, Julie A. Su, brought this action against the three owners of a company that rents RVs to the public, defendants Randall Smalley, Robert Smalley, Jr., and Eric Bensen. The Acting Secretary alleges that defendants knowingly participated in fiduciary breaches and engaged in a prohibited transaction in the creation of the company’s ESOP and during its stock transaction. Following a sixteen-day bench trial, the court issued this order stating its findings of fact and conclusions of law. The story begins in 2013, when defendants started seriously considering succession planning. The three men were reluctant to take the company public and began speaking with individuals at their bank, Wells Fargo, about other potential options. They were then brought into contact with financial advisors at the consulting firm Chartwell, and it was there that they were introduced to the idea of establishing an ESOP. As part of its presentations Chartwell emphasized that ESOPs were beneficial in several ways, including the ability for the sellers of the stock to eliminate their capital gains taxes, the possibility that the three men could maintain control of the company and act as its board of directors, and the fact that ESOP transactions can have “superior timing,” “certainty of close,” and “ease in negotiating terms.” In other words, Chartwell not so subtly hinted “to Defendants it could manipulate the transaction’s terms to whatever way Defendants desired.” Defendants liked the sound of what they were hearing and decided to pursue selling their stock to an ESOP. Chartwell quickly recommended appointing professionals “on the opposite side of the transaction,” to ensure that defendants’ interest, desired sales price, and timing could all be achieved. To the court, these representations made by Chartwell to the defendants clearly demonstrated “that Chartwell did not view the negotiation process as a truly arms-length negotiation as required by ERISA.” Nevertheless, things proceeded apace. Reliance Trust Company was picked as the ESOP trustee, just as Chartwell had recommended. It would ultimately be revealed through discovery that Reliance and Chartwell did a lot of business together both on opposite sides of ESOP transactions, as here, and together on the same side of ESOP transactions. The companies were both financially incentivized to refer business to one another and to close the ESOP transactions they worked on. Perhaps influenced by these incentives, the ESOP transaction at issue here was executed on a very expedited timeframe, just 41 days, which defendants required in order to defer capital gains taxes. Under pressure to finish the transaction very quickly, Reliance failed to follow its own internal guidelines, and although it negotiated on the financial terms of the transaction, it did not care about other specifics of the deal, Reliance failed to negotiate over defendants’ insistence they be the sole members of the board of directors and retain complete control over the company, and also failed to raise any concerns about defendants’ high compensation. In the end the ESOP transaction closed on May 27, 2014 with the ESOP paying $105 million for the stock, despite Reliance still not knowing many crucial details about the transactions and not having had the time to properly scrutinize the financial valuation. The court would ultimately conclude that “Reliance was well aware that Defendants were the beneficiaries of a ludicrous one-sided transaction yet Reliance proceeded in clear breach of its fiduciary duties.” The court agreed with the Secretary’s expert that fair market value of the company equity was truly $33 million “not worth anything close to the $105 million Reliance and Defendants expected and agreed upon.” The court criticized the fact that no discount was applied to reflect defendants’ continuing control over the company, or to account for the company’s debt, and only a tiny discount was applied for the stock’s lack of marketability. When it came time to analyze the claims of breach of the duty to monitor Reliance, co-fiduciary liability for Reliance’s violations of ERISA, and knowing participation in fiduciary breaches and prohibited transaction, the court had no trouble finding in favor of the Secretary. “Entering into such a one-sided transaction, when Defendants knew precisely how one-sided it was, constituted a breach of Defendants’ duty to monitor Reliance.” And because the record establishes that the transaction was not even close to the fair market value, the court agreed that it was a non-exempt prohibited transaction with parties in interest. The court also stated that indemnification was wholly inappropriate under the terms of the Plan document as defendants engaged in “willful” and “intentional misconduct.” Accordingly, the Secretary was successful in her action against the selling shareholders. The case will now proceed to its bifurcated second act to determine liability and remedies. Accordingly, eager readers will have to continue checking in with our newsletter for updates on the proceedings still to come.

Class Actions

Fourth Circuit

Trauernicht v. Genworth Fin., No. 3:22-cv-532, 2024 WL 3835067 (E.D. Va. Aug. 15, 2024) (Judge Robert E. Payne). Plaintiffs moved for class certification in this breach of fiduciary duty action brought against the fiduciaries of the Genworth Financial Inc. Retirement and Savings Plan. In broad strokes, plaintiffs allege that the Genworth and the other plan fiduciaries breached their duties by retaining the BlackRock LifePath Index Funds, a suite of underperforming target date funds, in the plan as the plan’s qualified default investments. Plaintiffs’ experts calculated that losses of the plan surpassed $34 million dollars as a result of the BlackRock target date funds. They moved to certify a class of all of the plans’ participants and beneficiaries. In this decision the court certified a slightly narrower class made up of the 95% of plan participants, and their beneficiaries, whose plan accounts included investments in the BlackRock LifePath Index Funds at any time between August 1, 2016 to the date of judgement. The court began its class certification analysis by addressing Article III standing. Although the court stressed that resolution over the proper measurement and calculation of damages is inappropriate at this juncture, and that “Rule 23 simply requires losses be capable of measurement on a class-wide basis,” it nevertheless expressed that it found plaintiffs’ theory of harm and chosen investment alternatives plausible. In any event, the court had little difficulty concluding that both named plaintiffs sufficiently demonstrated constitutional standing “under their proposed model of damages to pursue their claims on the merits.” The court next agreed with plaintiffs that the class is easily ascertainable. Further, the court found its narrowed class definition met the requirements of Rule 23(a), as the class of thousands is sufficiently numerous, common questions around the target date funds unites the class, plaintiffs are typical of the absent class members as there are no true intra-class conflicts, and the named plaintiffs and their counsel, Miller Shah and Tycko & Zavareei, are adequate representatives committed “to vigorously prosecuting the case.” Finally, the court determined that certification of the class is appropriate under both Rule 23(b)(1)(A) and (b)(1)(B) as the plaintiffs are suing in a representative capacity on behalf of the Plan and individual suits could easily lead to incompatible standards of conduct for the plan fiduciaries, and because adjudication of the claims involves the recovery of plan assets on behalf of the plan making resolution of this lawsuit “dispositive of the interests of the other participants claims on behalf of the Plan.” Accordingly, the court appointed the named plaintiffs the class representatives and their attorneys as class counsel, and certified the class of plan participants and beneficiaries who invested in the challenged target date funds.

Disability Benefit Claims

Ninth Circuit

Ehrlich v. Hartford Life & Accident Ins. Co., No. 20-cv-02284-JST, 2024 WL 3745008 (N.D. Cal. Aug. 8, 2024) (Judge Jon S. Tigar). Plaintiff Steven Ehrlich brought this action after his long-term disability benefits under the TriNet group disability policy were terminated in 2019 by defendants Hartford Life and Accident Insurance Company, Aetna Life Insurance Company, and TriNet Group Inc. Mr. Ehrlich applied for long-term disability benefits based on a variety of physical health conditions including chronic Lyme disease, fibromyalgia, complex neurological conditions, and bacterial infections. Although depression was a symptom of his physical conditions, Mr. Ehrlich did not apply for benefits based on any mental-health condition. Nevertheless, defendants terminated benefits after their reviewing physician, who specializes in internal medicine and occupational medicine, conducted an independent medical examination (“IME”) of Mr. Ehrlich and opined that his disabling impairments were caused by profound depression and a probable conversion disorder, not any physical condition. In this action Mr. Ehrlich challenged defendants’ termination of his benefits under Section 502(a)(1)(B), and sought statutory penalties under Section 502(c)(1) for failure to comply with requests for information and documents. The parties filed competing motions for judgment. The court issued this lengthy order ruling on those motions. To begin, the court specified that abuse of discretion review was applicable given the plan’s grant of discretionary authority. But before the court could resolve the cross-motions, it stated that it needed to first determine how much weight to accord defendants’ structural conflict of interest. The court identified several questions it had “about the adequacy and impartiality of [defendants’] investigation,” into Mr. Ehrlich’s claim. Despite having procedures in place to reduce bias, the court concluded that it was more likely than not that defendants’ conflict of interest infiltrated their administrative decision-making process here. It identified several worrying inconsistencies and irregularities in the way Mr. Ehrlich’s claim was handled and investigated. For one, the court outlined the ways defendants took inconsistent positions with respect to whether the internist who conducted the IME diagnosed Mr. Ehrlich with a mental illness. No mental health provider was ever hired by defendants to assess Mr. Ehrlich and the internal medicine doctor was not tasked with assessing whether Mr. Ehrlich suffered from a mental illness in the first place. Making matters worse, the court noted defendants failed to consult with a different physician on appeal who was not consulted in connection with the initial adverse decision, despite ERISA’s requirements that they do so. More broadly, the court wrote, “Defendants have not pointed to any provision in the Group Policy, or to any other authority, that permits them to treat Plaintiff’s LTD benefits claim as being based on a mental health condition even though Plaintiff never applied for LTD benefits based on a mental health condition.” In addition, the court criticized the fact that defendants provided their reviewing doctors only with the reports of other peer reviewers who found Mr. Ehrlich was capable of working full time. The court also stated that defendants failed to ask Mr. Ehrlich for evidence necessary to perfect his claim, failed to engage in a meaningful dialogue, and failed to credit reliable medical evidence that supported a finding of disability. Taken together, the court was suspicious that defendants’ financial conflict of interest played a role in their ultimate denial and therefore reviewed the adverse decision with a moderate degree of skepticism. Under that skeptical mindset, the court was left “with a definitive and firm conviction that a mistake was committed when Defendants terminated Plaintiff’s LTD benefits…” Accordingly, the court found defendants abused their discretion and entered judgment in favor of Mr. Ehrlich on his claim for benefits. The court then ordered the parties to submit briefs setting forth their positions about the appropriate remedy. Finally, the court entered judgment in favor of defendants on Mr. Ehrlich’s statutory penalties claim. The court said it was plaintiff’s burden to point to evidence demonstrating defendants failed to comply with requests for information and that Mr. Ehrlich failed to do so. Thus, the parties’ cross-motions for judgment were each granted in part and denied in part as outlined above.

ERISA Preemption

Seventh Circuit

Branson v. Caterpillar, Inc., No. 23 CV 14329, 2024 WL 3823157 (N.D. Ill. Aug. 14, 2024) (Judge Manish S. Shah). In Illinois the disclosure of genetic information is regulated by the Illinois Genetic Information Privacy Act. Plaintiffs Kerry Branson and Shelley Dotson seek to represent a class and bring claims alleging violations of the Act against a company they applied to work for, defendant Caterpillar, Inc. Plaintiffs assert two claims. First, they allege that the company violated Section 25(c)(1) “which prohibits employers from requesting genetic information of an individual or their family members as part of a preemployment application.” Second, plaintiffs assert a claim alleging a violation of Section 25(e), “which prohibits employers from using genetic information in furtherance of a workplace wellness program.” Caterpillar moved to dismiss the complaint. In this decision the court denied the motion to dismiss the first cause of action, but granted the motion to dismiss the second, as preempted by ERISA Section 514(a). The court concluded that dismissal was appropriate because the wellness program is part of an ERISA-governed employer benefit plan and Section 25(e) relates to the plan. “As pled in the amended complaint and based on the undisputed assertion that the wellness program fell under the company’s ERISA plan, Branson’s claim under Section 25(e) of the GIPA is preempted by ERISA.” Dismissal of the second cause of action was without prejudice.

Eighth Circuit

Securities Indus. & Financial Markets Assoc. v. Ashcroft, No. 23-cv-04154-SRB, 2024 WL 3842112 (W.D. Mo. Aug. 14, 2024) (Judge Stephen R. Bough). After penning an op-ed in the Missouri Times titled “Opinion: It’s Time to Rein In ESG,” the Secretary of the State of Missouri, John Ashcroft, took up the issue of socially minded investing through legislation with the Commissioner of the Missouri Securities Division, Douglas Jacoby, and enacted two Rules captioned the “Dishonest or Unethical Business Practices by Broker-Dealers and Agents” and the “Dishonest or Unethical Business Practices by Investment Advisers and Investment Adviser Representatives” which regulate financial professionals in the state and require them to obtain a signature from investors consenting to investments with “nonfinancial” and “social objective[s].” Each rule mandates that the written consent form investors must sign contain mandatory language that “includes an express acknowledgment that securities recommendations or investment advice will result in investments and recommendations that are not solely focused on maximizing a financial return for the investor.” Unhappy with these Rules, a trade associations of broker-dealers, asset managers, investment advisers, and banks, plaintiff Securities Industry and Financial Markets Association, filed this action against Mr. Ashcroft and Mr. Jacoby seeking declaratory relief and permanent injunction enjoining the two Rules in their entirety. Plaintiff asserted four causes of action in their complaint. Count one asserts the Rules are expressly preempted by the National Securities Markets Improvement Act of 1996 (“NSMIA.”) Count two alleges the Rules are preempted by ERISA. Count three contends that the Rules violate the First Amendment’s protection against compelled speech. Finally, count four is a claim that the Rules are unconstitutionally vague. The parties filed competing motions for summary judgment under Federal Rule of Civil Procedure 56. Plaintiff moved the court to declare the Rules preempted and unconstitutional and to enjoin defendants from taking any steps to enforce them. Plaintiff’s motion was wholly granted in this order, while defendants’ summary judgment motion was denied. First, the court addressed the merits of each of the four causes of action and concluded that plaintiffs succeeded on the merits of all four. The court found that the Rules were expressly preempted by NSMIA because they impermissibly require the financial professionals to make and keep records that differ from and are in addition to the federal requirements. So too for ERISA preemption. The court explained that the Rules “pose an obstacle to ERISA’s comprehensive remedial scheme,” because the Rules dictate and restrict the decision-making authority of ERISA fiduciaries by “creating a non-ERISA prohibition against ERISA-compliant fiduciary advice.” In addition to federal supremacy clause issues, the court also agreed with plaintiff that the Rules are in violation of the First Amendment by requiring scripted speech that is controversial and not wholly accurate. As a case and point, the court highlighted the Rules’ requirement that investors “acknowledge their choice to surrender higher returns for non-financial objectives.” And, to add insult to injury, the court also agreed with the industry group that the Rules were moreover unconstitutionally vague as they fail to define “nonfinancial objective,” and potentially create problems around any investment strategy that is not solely interested in achieving the highest possible returns on the investments “even when such strategies are the riskiest.” For all of these reasons, the court entered summary judgment in favor of plaintiff on all four counts. Having achieved success on the merits of their claims, the court further determined that a permanent injunction was appropriate here because plaintiff demonstrated irreparable harm, their harm outweighs any interest defendants have in enforcing the Rules, and a permanent injunction is in the public interest because the public “has a compelling interest in protecting First Amendment rights.” Thus, the court entered a permanent injunction prohibiting the Secretary of State and the State Securities Commissioner from implementing, applying, or taking any action to enforce the Rules statewide.

Medical Benefit Claims

Ninth Circuit

R.R. v. Blue Shield of Cal., No. 3:22-cv-07707-JD, 2024 WL 3748331 (N.D. Cal. Aug. 8, 2024) (Judge James Donato). This case arises from defendant Blue Shield of California’s denials of a family’s claim for $225,000 in unreimbursed medical costs from their minor son’s stay at a residential treatment center. The boy, plaintiff E.R., began receiving treatment at the long-term residential treatment facility after being involuntarily committed to hospital psychiatric wards on three separate occasions. During each event, E.R. was exhibiting violent and psychotic behaviors and was hurting or threatening to hurt himself and his family members. “Throughout this time, E.R. also experienced hallucinations.” Although the healthcare plan covers residential treatment, Blue Shield denied coverage to the family because it concluded that residential treatment was not medically necessary under the Magellan Care Guidelines. Under these guidelines, round the clock residential treatment is appropriate for individuals who are a danger to themselves or others due to hallucinations or persistent thoughts of suicide or homicide, or has severe mental health conditions that seriously impact daily living. Believing that E.R.’s stay met this criteria, and that he could not have been safely treated at a lower level of care, the family appealed the adverse decision, and eventually filed this action under ERISA. The parties filed competing motions for summary judgment on the claim for benefits. However, before the court reached the merits of the denial, it needed to assess the appropriate standard of review and address the issue of exhaustion. First, plaintiffs argued that Blue Shield’s determination should be reviewed de novo, despite the plan granting it discretionary authority, because the California insurance code renders discretionary provisions unenforceable. The court disagreed. It stated that Section 101110.6 of the California Insurance Code did not apply here, because the plan at issue is a managed health care plan governed instead by the Knox-Keene Act. Accordingly, the court concluded that it would review the denial under deferential arbitrary and capricious review. Next, the court disagreed with Blue Shield that plaintiffs failed to exhaust all of their claims. It determined that Blue Shield’s denial applied uniformly for the entirety of E.R.’s stay and that it would therefore review the family’s claim regarding E.R.’s stay through the date of his discharge. Further, the court determined that it would permit Blue Shield to cite the administrative record even though it did not do so in great detail throughout the administrative process. “Marshalling additional evidence to bolster an existing reason is different from offering new reasons…Blue Shield based the denial of coverage on medical necessity grounds, and relied on the same guidelines throughout the administrative process. Although Blue Shield’s initial denial was quite concise, it articulated a basis for denial that has remained consistent. Consequently, Blue Shield’s citations to the record are permissible, and will not be disregarded.” With these preliminary matters addressed, the court proceeded with its discussion of the merits of the denial. Although the court noted there “is no doubt that E.R. has a serious psychiatric condition and has suffered substantially from it, as has his family,” it nevertheless felt that it could not disturb the denial under an abuse of discretion review standard. Despite sympathizing with the family and their struggles to get care for their son, the court did not feel that plaintiffs demonstrated that the denial was unreasonable, illogical, or without substantial support. And while there was certainly evidence in the record to support the medical necessity of the treatment E.R. received, including the opinions of all of his treating healthcare providers, the court expressed that none of that evidence was in direct conflict with Blue Shield’s ultimate conclusion that the treatment was not medically necessary under its guidelines. For these reasons, the court affirmed Blue Shield’s coverage denial and entered summary judgment in its favor.

Pension Benefit Claims

Second Circuit

Pessin v. JPMorgan Chase U.S. Benefits Executive, No. 23-25, __ F. 4th __, 2024 WL 3763363 (2d Cir. Aug. 13, 2024) (Before Circuit Judges Parker and Nardini and District Judge Rakoff). In this putative class action, plaintiff-appellant Joseph Pessin alleges that the fiduciaries of the JPMorgan Chase Retirement Plan made insufficient disclosures to the plan’s participants as the defined benefit plan transitioned into a cash balance plan. Mr. Pessin appeals the district court’s dismissal of his action wherein the court concluded that the complaint failed to state claims under ERISA because “Defendants provided adequate disclosures that explained how the retirement plan worked and did not mislead plan participants about the potential effect of the conversion on a plan participant’s accrued benefits.” The Second Circuit affirmed in part and reversed in part the district court’s dismissal. In part one of the decision, the court of appeals concluded that defendants sufficiently disclosed the “wear-away” periods of the cash balance plan and that defendants complied with ERISA Sections 404(a) and 102 because the summary plan descriptions “clearly and accurately explained how a plan participant’s benefits would be calculated,” and informed the participants of “how to access more information about their minimum benefits and obtain a benefit comparison.” The Second Circuit recognized that a plan administrator breaches its fiduciary duties “when it affirmatively misrepresents the terms of a plan or fails to provide information when it knows that its failure to do so might cause harm,” but concluded that was not what happened here. As a result, the Second Circuit distinguished two of its earlier cases examining fiduciary breaches in the context of defined benefit plans converting to cash balances plans on the basis that one involved fiduciaries providing inaccurate information, and the other involved fiduciaries actively concealing information. Nevertheless, the Second Circuit disagreed with the district court’s determination that the pension benefit statements complied with ERISA Section 105(a), and it addressed this error in the second half of its decision. The appeals court found the allegations that defendants sent inadequate pension benefits statements plausible because ERISA requires these statements to unambiguously indicate the participant’s “total benefits accrued,” and plaintiff alleged that defendants sent statements to “the putative class members that included only one of two alternative calculations of their benefits, and the calculation they provided to Pessin did not reflect the amount he was actually entitled to receive.” To the court, the language of the pension benefit statements did not adequately disclose the “total benefits accrued,” as it was insufficiently “individualized for each plan participant.” In addition, the Second Circuit concluded that the complaint adequately alleged that the Board breached its duty to monitor the performance of the JPMC Benefits Executive with respect to the allegedly deficient benefit statements. The court of appeals therefore determined that the district court erred in dismissing the Section 404(a) claim against the Board to the extent it was about pension benefit statements. Accordingly, the court of appeals reversed this aspect of the dismissal and remanded for further proceedings below.

Seventh Circuit

Pastva v. Auto. Mechanics’ Local No. 701 Union & Indus. Pension Fund, No. 22 C 2957, 2024 WL 3834020 (N.D. Ill. Aug. 15, 2024) (Judge Elaine E. Bucklo). Plaintiff Steve Pastva was a member of the Automobile Mechanics’ Local No. 701 union and has been working at various points throughout his career for employers who were parties to collective bargaining agreements with the union. In this action, Mr. Pastva contends that he was wrongfully denied benefits under the union’s pension fund, that the fiduciaries of the fund breached their duties, that the terms of the plan violate ERISA, and that the fund failed to turn over records and documents. The pension fund moved for summary judgment on all claims. The court first addressed the plan’s break in service provisions, which state that upon incurring a permanent break in service “a nonvested employee’s participation in the Plan, as well as ‘previous Pension Credits, Years of Vesting Service, and Period(s) of Accrual are cancelled’ and he must begin anew.” Contrary to Mr. Pastva’s contention, the court determined that the plan’s provisions were not in conflict with any subsections of ERISA and that the terms of the fund were permissible. As the plan grants the fund discretion to determine benefits, the court applied the arbitrary and capricious standard of review to the denial. In the end the court found that the “administrative record lacks evidence to cast doubt on,” the decision, and therefore concluded that the fund acted reasonably in denying the claim for benefits based on Mr. Pastva’s employment history. The court stated that because Mr. Pastva did not work for contributing employers for more than five years, his pension credits failed to vest, and consistent with the plan terms and ERISA, “each period of breaks in service canceled each preceding period of years of service.” Moreover, the court concluded that there was insufficient evidence to support Mr. Pastva’s claim that the fund failed to provide him requested documents. Similarly, the court did not find the fund in violation of ERISA’s recordkeeping requirements, as it concluded Mr. Pastva was not harmed by the fund’s failure. Finally, the court determined that the fund did not breach its fiduciary duties. For the foregoing reasons, the court granted the fund’s motion for summary judgment on all of Mr. Pastva’s claims.

Ninth Circuit

McClean v. Solano/Napa Counties Elec. Workers Profit Sharing Plan, No. 23-cv-01054-AMO, 2024 WL 3747389 (N.D. Cal. Aug. 7, 2024) (Judge Araceli Martínez-Olguín). Plaintiff Rodney McClean has worked as an International Brotherhood of Electrical Workers union electrician since 1974. In 2009, after 31 years of credited service in the industry, Mr. McClean sought to take disability retirement following a diagnosis of a rare degenerative disease. At first, Mr. McClean was told that his disability pension was conditioned on his receipt of Social Security Disability Insurance (“SSDI”) benefits. However, even after Mr. McClean began receiving SSDI benefits in 2011, his application for pension benefits remained pending. At some point, Mr. McClean was told that he needed additional years of service to qualify for benefits and that he was not fully vested. Mr. McClean relied on these representations and started teaching at union apprenticeship and training programs. Eventually, in 2021, Mr. McClean applied for pension benefits again. His fresh application was granted, and he was awarded a monthly pension benefit of less than $600. Mr. McClean felt this amount was less than 10% of what he was entitled to. Accordingly, he appealed. “To date, there has been no decision on the appeal.” In this action, Mr. McClean and his wife, plaintiff Joanna McClean, have sued the union’s defined benefit and defined contribution pension plans and their fiduciaries under ERISA. Plaintiffs allege claims for benefits, fiduciary breaches, and statutory penalties. Defendants moved to dismiss. They argued the claims warranted dismissal because they are untimely, because plaintiffs failed to exhaust administrative remedies, and because plaintiffs have failed to plead sufficient facts to support their causes of action. The court agreed in part. As an initial matter, the court declined to dismiss the claims as untimely or for failure to exhaust administrative remedies. The court emphasized that under ERISA’s claims handling regulations benefit claims cannot remain “pending for the length of time McClean’s application has remained unresolved.” Because defendants have not complied with ERISA’s regulations, the court denied the motion to dismiss the wrongful denial of benefit claim for failure to exhaust. Moreover, the court concluded that the complaint adequately alleged a cause of action under Section 502(a)(1)(B). The motion to dismiss the claim for benefits was accordingly denied. However, the court dismissed the breach of fiduciary duty claims. It stated that plaintiffs failed “to differentiate their multiple and seemingly repetitive breach of fiduciary duty claims, which are lumped together in each count without reference to the district factual basis giving rise to each alleged breach.” Moreover, the court concluded that it could not plausibly infer the fiduciary breaches from the facts in the complaint as currently alleged. The motion to dismiss the fiduciary breach claims was therefore granted. Though the court did not dismiss plaintiffs’ claim for statutory penalties for violation of Section 1132(c)(1). The complaint alleges that plaintiffs sent written requests for documents on multiple dates in 2021 and 2022 and that defendants have never provided these documents. The court found these allegations sufficient to plead a claim for statutory penalties for withholding documents. The court still had a few more matters to address. First, it refused to dismiss the third-party administrator and the plan manager as defendants to this action. The court felt that it was not appropriate to address the fiduciary status of these defendants until after discovery. Second, the court agreed with defendants that Ms. McClean is not a proper plaintiff and granted the motion to dismiss her. Finally, the court dismissed the Local 6 union defendants from this action. The complaint, the court noted, acknowledges Mr. McClean was a Local 180 union member and plan participant. It therefore stated that the allegations in the complaint only sufficiently state claims against the Local 180 defendants, and that they fail to establish that Mr. McClean was a part of Local 6 or a participant in its pension plan. Insofar as the case the dismissed, dismissal was without prejudice and Mr. McClean was permitted to file a second amended complaint to cure the deficiencies identified in this order.

Plan Status

Eleventh Circuit

The Cobb Found. v. Hart County, No. 3:24-cv-00053-TES, 2024 WL 3823016 (M.D. Ga. Aug. 14, 2024) (Judge Tilman E. Self, III). Ordinarily, state and federal government pension plans fall outside the purview of ERISA. Matters get complicated, however, when the government is involved with a private company or non-for-profit. This case involves the relationship between a non-profit, Cobb Foundation, Inc., and Hart County, Georgia. In 1974, the Hart County Hospital Authority adopted a retirement plan, the Group Pension Plan for Employees of the Hart County Hospital. Then, in 1995, the Cobb Foundation and Hart County entered into a lease agreement and the Cobb Foundation began leasing the hospital and other related medical facilities to the County. Since the County no longer owned the hospital, its employees were terminated and no longer government employees. But most of the workers still worked for the hospital. “This change in employment also altered the employees’ ability to participate in the Plan – CFI was not a sponsor, employer, or subsidiary under the Plan, so any employees hired by CFI were no longer eligible for future benefit accruals.” One year later, in 1996, the County froze the plan. Jumping forward a few years to 2014, the Cobb Foundation and Hart County agreed to terminate the lease. Although the termination agreement between the parties did not mention the pension plan, the terms of the agreement required the County to “transfer and [convey] to [the Cobb Foundation] all of its rights, titles, interests, equities, claims and demands in and any assets owned by [the Cobb Foundation] which are utilized by [it] in the operations of the Hospital.”  Cobb Foundation paid the County $1.35 million. Hart County subsequently dissolved the Hart County Hospital Authority, but did not address the old pension plan or fund it. Cobb Foundation, which had acted as administrator of the Plan, informed the County that the Plan would become insolvent in June of 2024. The County maintains that the obligation to fund the Plan lies with the Cobb Foundation. The Cobb Foundation disagrees, and on May 20, 2024, it filed this action in the Superior Court of Hart County, Georgia, seeking declaratory relief against the County holding that it is not and has never been the sponsor of the Plan, that it does not have funding obligations to the Plan, and that the County is the Plan sponsor and holds the responsibility to fund the Plan. The County removed the action to federal court. It contends that the opposite is true, and that the Plan is not a government Plan but an ERISA-governed Plan. The County filed a motion to dismiss the complaint as preempted by ERISA. The Cobb Foundation filed a motion to remand the case to state court arguing the Plan is exempt from ERISA. Thus, the questions for the court became, one, is the Hart County Hospital Authority a political subdivision of the state of Georgia, and two, was the Plan established and maintained by the Hart County Hospital Authority. The answers to both questions were yes. The court stated that Georgia law makes clear that the Authority falls under ERISA’s definition of a government entity as courts analyzing Georgia law consistently determined that hospital authorities are instruments of the state, particularly in light of the fact that their boards are made up of individuals who are “responsible to public officials or to the general electorate.” And while the court acknowledged that the question of whether the Plan was established or maintained by the Authority is “a bit thornier,” it nevertheless drew the conclusion that as the Authority established the Plan, the Plan is designated a governmental plan exempt from ERISA. Accordingly, the court denied the motion to dismiss and granted the motion to remand.

Venue

Seventh Circuit

Juste v. Turning Pointe Autism Found., No. 23 CV 15143, 2024 WL 3834144 (N.D. Ill. Aug. 15, 2024) (Judge Thomas M. Durkin). Cassandra Juste sued her former employer, the Turning Pointe Autism Foundation, and the other fiduciaries of its defined contribution plan, The Capital Group Companies Inc. and American Funds Distributors, Inc., under ERISA for failing to process her enrollment application, failing to deposit her elective deferrals, and failing to match the contributions she elected to make. Defendants never disclosed to Ms. Juste that there had been an issue with her enrollment in the plan, and she only learned of these problems when her employment ended. Turning Pointe moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(3) for improper venue. Turning Pointe argued that Ms. Juste’s complaint was not properly filed in the Northern District of Illinois because her enrollment application for the plan included a forum selection clause which states that all actions must be brought in state or federal courts in California. In this decision the court agreed that venue was improper and granted the 12(b)(3) motion to dismiss. The court noted that the Seventh Circuit has considered forum selection clauses in ERISA actions before and praised the fact they “promote uniformity in plan administration and reduce administrative costs and in that sense are consistent with the broader statutory goals of ERISA.” Turning Pointe attached a declaration from one of its employees attesting that it was the employer’s “custom and practice to provide all new employees” with the Custodial Agreement which contained the unambiguous one paragraph forum selection clause. The court stated that this was sufficient foundation. Moreover, the fact that Turning Pointe itself is not a party under the Custodial Agreement was not problematic to the court because the language of the forum selection clause “mandates that any case ‘arising under’ the Custodial Agreement be brought in California, whether the case is initiated by the ‘Custodian, Participant, Beneficiary, or any interested party.” Because Ms. Juste is bound by the forum selection clause, the court expressed that the forum selection clause covers interest parties as well, which here includes Turning Pointe. As such, the court concluded that the forum selection clause applies to this matter, and it requires Ms. Juste to file her action in California federal court. Thus, Turning Pointe’s motion to dismiss for improper venue was granted, and the action was dismissed without prejudice.

Ninth Circuit

Emsurgcare v. Hager, No. 2:24-cv-02243-AB-PD, 2024 WL 3841495 (C.D. Cal. Aug. 8, 2024) (Judge André Birotte Jr.). Emergency healthcare providers, Emsurgcare and Emergency Surgical Assistant, brought this action seeking reimbursement of emergency medical services provided to a patient, defendant Avery Hager. The providers allege that Mr. Hager’s insurance, defendants United Healthcare/Oxford Health Plans, paid only $3,475 of the $103,500 owed, and that Mr. Hager is required to pay the remainder, plus interest. They assert a claim of breach of written contract, and a claim of account stated against the patient. In addition, the providers allege two counts of tortious interference against the United Healthcare defendants, asserting that the insurance companies interfered with the separate contract with themselves and Mr. Hager, “in which Hager agreed to pay that which his insurer would not cover.” In response to these allegations, Mr. Hager moved to dismiss and United moved to transfer venue. Both motions were granted in this order. Beginning with the motion to dismiss, the court agreed with defendants that the contract between the providers and Mr. Hager is an illegal case of balance billing of emergency surgery, in conflict with California law and unenforceable. The motion to dismiss was therefore granted. The court then tackled the motion to transfer venue. United argued that the case should be moved to the Southern District of New York pursuant to the terms of an unambiguous and binding forum selection clause. Concluding that no exceptional circumstances deemed the forum selection clause unreasonable, and that the clause applies to the providers’ tort claims, which cannot be resolved without interpreting the health plan, the court agreed that the case needed to be transferred to the district court in New York state.