Messing v. Provident Life & Accident Ins. Co., No. 21-2780, __ F.4th __, 2022 WL 4115873 (6th Cir. Sept. 9, 2022) (Before Circuit Judges Clay, Rogers, and Kethledge)

ERISA provides that a plan participant, beneficiary, or fiduciary can sue to obtain “appropriate equitable relief.” 29 U.S.C. § 1132(a)(3). One of the thorniest issues in ERISA litigation is what this provision means. Who is allowed to obtain equitable relief, and what kind of relief can they get? In this published decision, the Sixth Circuit circumscribed the ability of a plan fiduciary to use ERISA’s equitable relief provision to claw back benefits it had previously paid to a participant. At the same time, it overturned that fiduciary’s denial of benefits to the participant.

The plaintiff is Mark Messing, an attorney in Traverse City, Michigan, who unfortunately began struggling with depression in 1994. His condition worsened over the ensuing years to the point that he was eventually hospitalized in 1997. He returned to work, but never full-time, and filed a claim for long-term disability benefits under his ERISA-governed employee benefit plan, which was insured by defendant Provident.

Provident initially approved his claim, but terminated it after a few months. In 1999, Messing sued Provident, who eventually agreed to reinstate his claim. Provident continued paying benefits until 2018, at which time it reviewed updated records from Messing’s physician. After examining these records, and referring the case for further medical review, Provident concluded that Messing could return to work and terminated his claim.

Messing filed suit against Provident, and Provident counterclaimed. Provident’s counterclaim was based on evidence it had uncovered during its investigation that Messing had performed some legal services while receiving benefits. Provident contended that it should be allowed to recover overpaid benefits from Messing under ERISA’s equitable relief provision.

The district court upheld Provident’s termination of benefits, but rejected Provident’s argument that it was equitably entitled to recover overpayments. Both parties appealed.

The Sixth Circuit first tackled the issue of whether Provident was justified in terminating Messing’s benefits. Because the benefit plan did not grant Provident discretionary authority to determine benefit eligibility, the court reviewed Provident’s decision de novo. In doing so, the court addressed two categories of evidence: the physicians’ reports and attorney affidavits.

There were three physician reports, and the Sixth Circuit determined that one was equivocal, one was unhelpful to Messing (indeed, Messing had told the doctor “I’m not” in response to the question of how he was impaired), and the third favored Messing. The court noted, however, that all three doctors “acknowledged the fragile state of Messing’s mental health and that he should be mindful to avoid stressful environments to prevent a relapse into a worse state of depression.” Furthermore, only the third doctor “directly addressed the question at issue: whether Messing could return to work. He squarely stated Messing could not.”

As for the affidavits, they attested that “lawyering is a stressful occupation, that Messing lacks the ability to deal with stress, and that Messing has lost the skills to return to the practice of law after a 20-year hiatus.” The court found that these affidavits were only marginally helpful, as the court was already aware that practicing law is stressful, and testimony regarding Messing’s lost skills “is a separate problem that goes to his employability as a lawyer, not Messing’s disability.” However, the affidavits did provide “some support” for Messing’s argument that he continued to suffer from depression, which was relevant to his claim.

Taking all this evidence together, the Sixth Circuit determined that this was a sufficient showing by Messing, by a preponderance of the evidence, to demonstrate that he “remains unable to return to work as an attorney. Because the district court has held otherwise, we reverse.”

The court then turned to Provident’s claim for equitable relief. Provident asserted that it was entitled to either a lien for restitution or a lien by agreement. The Sixth Circuit agreed with the district court that Provident was not entitled to relief under its restitution theory. The district court had held that Provident “needed to prove that Messing’s statements ‘induced’ it into making payments it otherwise would not have made.” Provident argued that it did not need to show inducement, and that the restitution remedy “simply exists to ‘restore the status quo.’”

However, the Sixth Circuit consulted the Restatement of Restitution and Unjust Enrichment, which “is clear that Provident must prove that the transfer of benefits to Messing was induced by fraud.” Provident had learned that Messing had done part-time legal work, but it could not prove that it would have terminated his claim if it had known about that work. The evidence only showed that Provident would have reevaluated Messing’s claim, and “a review of Messing’s claim does not necessarily mean it would have terminated his benefits earlier.” Because Provident had not introduced satisfactory evidence of inducement, it could not prevail on its restitution theory.

Provident fared no better with its lien by agreement theory. Provident argued that the Individual Disability Status Updates Messing signed from 2010 through 2017 created such an agreement because they included a condition that Messing would repay any overpayments. However, the Sixth Circuit rejected this argument because the language Provident sought to enforce was not in the plan itself: “[A]n equitable lien by agreement for the reimbursement of overpaid benefits under § 502(a)(3)’s equitable relief clause requires that the ERISA-qualified plan contain a promise to repay overpaid benefits.” No such requirement existed in Messing’s benefit plan and thus Provident could not pursue a lien by agreement.

Finally, the court emphasized that “to allow Provident to obtain [equitable] relief…would be illogical in light of our separate holding that Messing remains disabled.”

In short, the appeal was a total victory for Messing, whose benefits will now presumably be reinstated. Attorney claimants often fare well with the courts in ERISA disability disputes, and this case was no exception.

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

Breach of Fiduciary Duty

Third Circuit

Perrone v. Johnson & Johnson, No. 21-1885, __ F.4th __, 2022 WL 4090301 (3d Cir. Sep. 7, 2022) (Before Circuit Judges Jordan, Restrepo, and Smith). Health care industry behemoth Johnson & Johnson has made the headlines a lot recently. This February the company agreed to a $26 billion opioid settlement for its role in contributing to the drug epidemic as one of the country’s largest pharmaceutical distributors. The company is of course also responsible for making one of the country’s COVID-19 vaccines, and administering hundreds of millions of doses worldwide, although the FDA has recently limited its approved use in the U.S. due to rare but serious side effects. And, as relevant to this Employee Stock Ownership Plan (“ESOP”) ERISA class action, the company has faced a major scandal regarding one of its best-selling products, Johnson’s Baby Powder. Over the years, Johnson & Johnson has faced thousands of lawsuits in which plaintiffs alleged that its talc-based baby powder contains asbestos, a carcinogen that is linked to ovarian and other cancers. In late 2018 Reuters published an article, J&J Knew For Decades That Asbestos Lurked In Its Baby Powder, in which the news outlet described how Johnson & Johnson knew that its product likely contained asbestos but kept that information from regulators and consumers by taking actions like influencing scientific research and U.S. regulations. This article created such a splash that other news sources picked it up and Johnson & Johnson’s stock declined over 10% immediately after its publication. As a result of the revelations about Johnson’s Baby Powder and the company’s actions, two major lawsuits are currently pending in the U.S. District Court for the District of New Jersey, a “Products Liability Action” about personal injuries caused by the talc-based products, In re Johnson & Johnson Talcum Powder Prod. Mktg., Sales Pracs. & Prod. Liab. Litig., and a “Securities Fraud Action” alleging senior executives at the company failed to comply with federal securities disclosure laws, Hall v. Johnson & Johnson. In light of all of this, plaintiffs in this lawsuit, participants in the Johnson & Johnson ESOP, allege that the ESOP’s fiduciaries violated their duties by failing to take actions that could have protected the ESOP from the stock market ramifications of these scandals. Specifically, plaintiffs asserted that defendants could have taken one of two actions to ward off the steep stock price drop. First, they claim that defendants could have made corrective public disclosures that may well have prevented such significant stock price declines, and therefore protected the participants. Second, they argued that defendants could have stopped investing in J&J stock altogether and chosen instead to hold the ESOP contributions in cash. Defendants moved to dismiss the complaint in the district court, and the district court granted their motion, agreeing that plaintiffs’ proposed alternative actions failed the Supreme Court’s Fifth Third Bancorp v. Dudenhoeffer test, because a reasonable fiduciary would view the proposed disclosures or cash holdings as “being likely to do more harm than good to the ESOP.” Plaintiffs appealed the dismissal. In this order, the Third Circuit affirmed the lower court’s ruling agreeing that neither proposed course of action outlined in plaintiffs’ complaint passed the Dudenhoeffer test because both “would do more harm than good.” The Third Circuit recognized that this standard, requiring a plaintiff to propose an alternative course of action that is so clearly beneficial as to satisfy this requirement, “is a high bar to clear, even at the pleadings stage, especially when guesswork is involved.” Nevertheless, the Third Circuit held that this is the standard required, and plaintiffs failed to meet it. As the Third Circuit pointed out, only one post-Dudenhoeffer decision, a case in the Second Circuit, “has held that a plaintiff plausibly alleged that corrective disclosures were so clearly beneficial that no prudent corporate-insider fiduciary could have concluded that earlier corrective disclosures would have done more harm than good.” As ESOPs already exist within an exemption to ERISA’s typical diversification requirements, the post-Dudenhoeffer world poses a doubly difficult position for ESOP participants bringing these types of suits who are naturally concerned with the stability of their retirement investments. This decision then is typical and demonstrative of these difficulties, whether or not one agrees with its conclusions.

Disability Benefit Claims

Second Circuit

Baribeau v. Hartford Life & Accident Ins. Co., No. 3:20-CV-01290 (KAD), 2022 WL 4095778 (D. Conn. Sep. 7, 2022) (Judge Kari A. Dooley). Cardiovascular/thoracic surgeon Yvon Baribeau stopped working in 2019 due to a hand deformity called Dupuytren’s Disease, which he developed in both hands, and which affected his ability to safely perform surgery. Mr. Baribeau is a participant in his employer’s employee welfare benefit plan, the Catholic Medical Center long-term disability plan. He submitted a claim for benefits in February 2020. His claim was approved. However, the plan’s administrator, defendant Hartford Life and Accident Insurance Company, decided to offset Mr. Baribeau’s $15,000 in gross monthly benefits not only by the amount he was receiving from the Social Security Administration, but also by the gross monthly benefits of $10,000 he was receiving as a participant in another long-term disability income plan which was sponsored by the American Medical Association (“AMA”). This suit followed, after Hartford upheld its determination on appeal. The parties each moved for summary judgment on the issue of whether Hartford correctly offset the monthly benefits by the amount Mr. Baribeau was receiving from the AMA Plan. As the Catholic Medical Center’s plan includes a discretionary clause, the parties agreed that abuse of discretion review was applicable. Under this review standard the court concluded that Hartford’s interpretation of the plan language was rational and in keeping with the plain words of the plan. In fact, Mr. Baribeau’s explanation of how the AMA Plan could fall outside the plan’s definition of “Other Income Benefits” was, in the court’s view, the more convoluted reading of the plan which would require the court to read additional terms and requirements into the phrase “as a result of,” which the court disfavored doing. Accordingly, the court entered summary judgment in favor of Hartford.

Sixth Circuit

Alvesteffer v. Howmet Aerospace, No. 1:20-cv-703, 2022 WL 4077838 (W.D. Mich. Sep. 6, 2022) (Magistrate Judge Phillip J. Green). This February, Your ERISA Watch summarized Magistrate Judge Green’s summary judgment decision in this long-term disability benefit suit wherein plaintiff Thomas Alvesteffer challenged the termination of his benefits by his employer defendant Howmet Aerospace. The court granted in part and denied in part Mr. Alvesteffer’s motion for summary judgment. Specifically, the court concluded that the denial was arbitrary and capricious and vacated the termination decision. However, the court went on to state that Mr. Alvesteffer had failed to establish his entitlement to benefits and therefore decided to remand to defendant for reconsideration. The court expressed that it was beyond its expertise to weigh medical and vocational evidence pertaining to disability, and therefore relied on Sixth Circuit precedent supporting remand as an appropriate remedy when a court identifies problems with the decision-making process rather than when it draws the conclusion that a claimant is obviously entitlement to benefits. Mr. Alvesteffer moved for reconsideration pursuant to Federal Rule of Civil Procedure 59(e), asking the court to reconsider its decision that this matter should be remanded to defendant for further assessment of whether Mr. Alvesteffer is disabled under the plan terms. In his motion, Mr. Alvesteffer stressed that he was “not asking the Court to become a medical or vocational expert, but only to review the expert opinions already provided by (him), and if it deems those opinions to be competent and valid, to reconsider and alter or amend its opinion accordingly and award benefits.” As before, the court was unwilling to perform this function, again concluding that “it lacks the experience and expertise to evaluate such opinions or otherwise evaluate medical or vocational evidence.” The court rejected “Plaintiff’s assurances that he is ‘not asking the Court to become a medical or vocational expert,’” stating to the contrary, “this is precisely what Plaintiff is requesting.” As before, the court declined to survey the evidence of disability, and thus denied Mr. Alvesteffer’s motion for reconsideration.

Discovery

Eleventh Circuit

Prolow v. Aetna Life Ins. Co., No. 9:20-cv-80545, 2022 WL 4080743 (S.D. Fla. Sep. 6, 2022) (Magistrate Judge William Matthewman). This suit is a class action pertaining to wrongfully denied coverage for a cancer treatment known as Proton Beam Radiation Therapy. The court’s order granting summary judgment in favor of the two named plaintiffs on their individual claims for benefits was our notable decision in Your ERISA Watch’s February 2, 2022 issue. Following that order, this case has proceeded as a putative class action. The parties have engaged in numerous discovery disputes. In this order, the court denied Aetna Life Insurance Company’s motion to compel plaintiff’s two engagement letters with their counsel. Plaintiffs opposed producing their engagement letters and argued that under Eleventh Circuit case law “class representatives’ engagement letters with counsel are not discoverable, absent a showing by the defendant that a conflict of interest exists” between the class representatives and their counsel. They argued that contrary to Aetna’s belief, the engagement letters do not promise or in any way speak to incentive payments to Plaintiffs, nor do they contain any information about counsel’s hourly rate. Rather, plaintiffs attested, the engagement letters requested are standard contingency fee agreements. In support of this, plaintiffs produced the two letters for the court to review in camera. Having reviewed the engagement letters, the court confirmed the truth of plaintiff’s assertions. Furthermore, the court agreed with plaintiffs that defendant did not show that a conflict of interest exists between the two plaintiffs and their attorneys. Instead, Aetna had argued that a potential conflict exists between plaintiffs and the putative class, which the court stated is not grounds to require production of engagement agreements in the Southern District of Florida. Finally, the court held that it has not yet certified the class or made any determination on class damages, meaning the engagement letters between plaintiffs and their legal counsel is not yet “relevant under Rule 26(b)(1) at this stage of the litigation.” Accordingly, the court denied defendant’s motion due to lack of relevancy at this time but did so without prejudice. For readers interested in more information about Proton Beam Radiation Therapy litigation, be on the lookout for an article in the upcoming fall edition of the American Bar Association TIPS Newsletter, written by our colleagues at Kantor and Kantor, Anna Martin and Tim Rozelle.

Medical Benefit Claims

Second Circuit

Connecticut Gen. Life Ins. Co. v. Ogbebor, No. 3:21-cv-00954 (JAM), 2022 WL 4077988 (D. Conn. Sep. 6, 2022) (Judge Jeffrey Alker Meyer). In May 2020, Cigna Health and Life Insurance Company opened an investigation into a healthcare provider, Stafford Renal LLC, which offered dialysis treatments for end stage renal disorder (“ESRD”), believing the provider’s prices for these treatments were “significantly inflated.” During that investigation, Cigna learned that Stafford lacked a required ESRD license, as its old license had expired in 2016, and that the provider was therefore operating in violation of Texas medical licensing requirements. Additionally, Cigna claimed that it interviewed patients receiving treatment at Stafford and discovered that many of the claims for dialysis treatment that Stafford had billed for were not actually performed. Accordingly, Cigna commenced this lawsuit against the provider and its owner, Mike Ogbebor, under Section 502(a)(3) of ERISA, and also brought claims for fraudulent misrepresentation, negligent misrepresentation, and violations of the Connecticut Unfair Trade Practices Act, the Connecticut Health Insurance Fraud Act, and for civil theft. Cigna also sought to pierce the corporate veil and requested the court hold Mr. Ogbebor personally liable for the actions of his company. Mr. Ogbebor had answered Cigna’s complaint on behalf of both defendants. The court previously struck this answer with respect to Stafford because Mr. Ogbebor is a non-lawyer, and the court held that he could not represent his company in this suit. Cigna then moved for a default entry against Stafford. The court granted the default due to Stafford’s failure to appear. Cigna also moved for discovery seeking medical records, information regarding Mr. Ogbebor’s role in Stafford’s ownership and management, and Mr. Ogbebor’s legal and criminal record pertaining to past fraud. Mr. Ogbebor, despite repeated warnings from the court, failed to respond to Cigna’s discovery requests. In this order, the court granted Cigna’s motion for default judgment against both defendants based on their actions to date and awarded declaratory judgment stating that Cigna has no obligation to honor past or future claims submitted by Stafford for ESRD services, and treble monetary damages for the ESRD claims Cigna already paid Stafford, totaling $14,371,384.95 as Cigna adequately stated a claim for civil theft under insurance-friendly Connecticut law which requires such tripling. However, because Cigna was found to be entitled to legal relief in the form of damages, the court did not award anything under Cigna’s claim for equitable recoupment under Section 502(a)(3) of ERISA. Finally, the court agreed to pierce the corporate veil, finding that Cigna provided sufficient evidence for it to infer that Stafford was functioning as Mr. Ogbebor’s corporate alter-ego. The court therefore held Mr. Ogbebor personally liable for the entirety of the damages awarded to Cigna.

Ninth Circuit

RJ v. Cigna Health & Life Ins. Co., No. 5:20-cv-02255-EJD, 2022 WL 4021890 (N.D. Cal. Sep. 2, 2022) (Judge Edward J. Davila). Participants in ERISA-governed healthcare plans have brought a putative class action suit against Cigna Behavioral Health Inc. and MultiPlan, Inc. for failure to reimburse covered out of network mental health provider claims at usual, customary, and reasonable (“UCR”) rates. Plaintiffs claim that defendants engaged in a conspiracy to artificially underprice claims, wherein the insurer played an active role in collaborating and instructing MultiPlan on its “target rate” for each claim it desired to reprice, and MultiPlan utilized these instructions when designing its Viant methodology, giving the arbitrarily low prices the appearance of legitimacy. Plaintiffs asserted claims of RICO violations and RICO conspiracy against both defendants, an ERISA claim for underpayment of benefits against Cigna, and claims for breach of fiduciary duties of loyalty and duty of care against each of the two defendants under Section 502(a)(3) seeking declaratory and injunctive relief. Defendants moved to dismiss. Cigna sought dismissal of the RICO claims, and as part of its Rule 12(b)(6) motion also argued that claims of one of the named plaintiffs (“LW”) must be brought in the Western District of Tennessee in accordance with her plan’s forum selection clause. MultiPlan also sought dismissal of the RICO claims and the ERISA Section 502(a)(3) claim asserted against it. As far as the RICO claims were concerned, the court was satisfied that plaintiffs adequately pled a “violation of RICO based on the predicate acts of mail and wire fraud, but not based on the predicate act of money laundering.” Therefore, the court granted defendants’ motions for the RICO claims to the extent they were based on money laundering. MultiPlan’s motion to dismiss the ERISA claim brought against it was denied. The court was convinced that the complaint sufficiently alleges that MultiPlan is a fiduciary under ERISA, and that the same allegations that support plaintiffs’ RICO claim also support a breach of fiduciary duty claim. The court also rejected MultiPlan’s argument that plaintiffs are not entitled to equitable relief. Plaintiffs, the court held, may seek equitable relief in the alternative and it would be premature at the pleading stage “to engage in a battle over whether or not a specific equitable remedy is appropriate.” Finally, the court held that plaintiff LW’s forum selection clause was valid, and a forum selection clause could be enforced during a Rule 12(b)(6) motion to dismiss. Accordingly, the court dismissed LW’s claims from the case, holding that she must bring her claims in the Western District of Tennessee. Thus, as explained above, the motions to dismiss were granted in part and denied in part.

Pension Benefit Claims

Eleventh Circuit

Southeastern Carpenters & Millwrights Pension Tr. Fund v. Carter, No. CV 621-046, 2022 WL 4098517 (S.D. Ga. Sep. 7, 2022) (Judge J. Randal Hall). Decedent Bruce C. Jeffers was a participant in an ERISA-governed pension plan, the Southeastern Carpenters and Millwrights Pension Trust Plan. This suit is an interpleader action brought by the plan to determine the proper beneficiary of Mr. Jeffers’ pension benefits. During his life, Mr. Jeffers had named several beneficiaries at different junctures, and the last two of his beneficiary designation forms were completed while he was married but lacked his then-wife’s signature. Because of this, Mr. Jeffers left a bit of a mess behind. The story begins in 2008, when his first designation occurred. At that time, Mr. Jeffers elected his then-fiancée, defendant Robin Handly, as his primary beneficiary. It seems Mr. Jeffers and Ms. Handly never married. Instead, two years later, in 2010, Mr. Jeffers married Grace Jeffers, and Mr. Jeffers accordingly changed his beneficiary designation card and designated Ms. Jeffers as the plan’s primary beneficiary, and his stepdaughter, defendant Victoria Thames, as the plan’s contingent beneficiary. In his 2013 designation form, Mr. Jeffers attempted to designate his sister, defendant Cynthia Gail Carter, as his primary beneficiary. At the time of the 2010 and 2013 designations, Mr. Jeffers was still married to Ms. Jeffers. This was the last designation form Mr. Jeffers completed. The Jeffers divorced in 2020. Unfortunately, the plan expressly requires a married plan participant to obtain their spouse’s signature if they wish to name a beneficiary other than their spouse, and neither the 2010 nor 2013 designation form included Ms. Jeffers’ signature. Per the plan, “if a spouse is designated as a Beneficiary, such designation shall be revoked automatically by a subsequent divorce.” Thus, the 2020 divorce revoked Ms. Jeffers’ status as a beneficiary. None of the parties disputed that the 2008 beneficiary designation form was valid at the time. The parties also agreed that the 2010 designation was valid insofar as it designated Ms. Jeffers. However, the parties disputed whether (1) the 2010 contingent beneficiary designation was invalid; (2) the 2013 beneficiary designation was invalid; (3) the 2010 beneficiary designation revoked defendant Handly’s 2008 designation as a beneficiary even after the divorce; and (4) the divorce revoked defendant Thames’ status as a contingent beneficiary. Each of the defendants moved for summary judgment. The court began its analysis with the claim for benefits of defendant Carter (the sister) and concluded that the 2013 designation form, which lacked Ms. Jeffers’ signature, was invalid. Accordingly, Ms. Carter was found not to be entitled to benefits and her motion for summary judgment was denied. Next, the court concluded that the 2010 contingent beneficiary designation, which also lacked Ms. Jeffers’ signature, was also invalid, meaning defendant Thames’s (the stepdaughter’s) motion for summary judgment was denied too. Finally, the court concluded that the 2010 beneficiary form, which was valid for its primary beneficiary designation of Ms. Jeffers, because a designation of a spouse does not require the spouse’s signature, had revoked defendant Handly’s (the ex-fiancée’s) designation as beneficiary. Therefore, her motion for summary judgment was also denied. Having found that none of the defendants had been effectively named and were therefore not entitled to the benefits, the court returned the funds to the plan, and instructed the plan to distribute the funds pursuant to Section 5.14, which provides for how to pay benefits when no beneficiary or contingent beneficiary has been effectively named.

Pleading Issues & Procedure

Sixth Circuit

Schmittou v. The Cincinnati Life Ins. Co., No. 1:21-cv-556, 2022 WL 4080143 (S.D. Ohio Sep. 6, 2022) (Judge Matthew W. McFarland). On July 22, 2021, defendant The Cincinnati Life Insurance Company filed an interpleader complaint in the Court of Common Pleas of Hamilton County, Ohio against Melissa Schmittou and Pamela Schmittou to determine the proper beneficiary of a group life insurance policy belonging to decedent Timothy Schmittou. Mr. Schmittou is plaintiff Melissa Schmittou’s ex-husband and was married at the time of his death to Pamela Schmittou. Plaintiff, both in her response in the interpleader action and in her complaint in this lawsuit, which she brought on August 27, 2021, alleges that she and not Pamela Schmittou is the beneficiary of the policy and therefore she is entitled to the policy’s benefits. It should be noted that after commencing this lawsuit in the federal district court, plaintiff voluntarily dismissed her counterclaim without prejudice in the state law interpleader case. Defendant nevertheless moved to dismiss Ms. Schmittou’s case, arguing that the court should abstain from exercising jurisdiction over the case pursuant to the Colorado River abstention guidelines outlined by the Supreme Court. In response, Ms. Schmittou claimed that the motion to dismiss is moot as she voluntarily dismissed her counterclaim in the state law case. As a preliminary matter, the court stated that despite Ms. Schmittou’s failure to address the Colorado River factors in her briefing, the court found that it should consider each in turn before reaching a decision on the appropriate course of action regarding the two parallel cases. First, the court held that because the state court has not assumed jurisdiction over res or property in the case, the first of the eight factors weighed in favor of it exercising jurisdiction. Next, the court concluded that the state and federal forums were each as convenient to the parties as the another and found the second factor therefore neutral. Third, the court weighed the avoidance of piecemeal litigation factor, concluding that this factor weighed strongly in favor of abstention as there is a potential for two outcomes that are in direct conflict with one another. The court also factored that the state law interpleader case was brought first, which again favored abstention. The governing law here is federal, but the state court action could adequately resolve the issues as it enjoys concurrent jurisdiction with federal courts in ERISA actions, so the fifth factor was found to be essentially neutral. The relative progress in the proceedings was also a neutral factor, as neither case had progressed much to date. Finally, the presence of concurrent jurisdiction, as previously mentioned, weighed in favor of abstention. Thus, the court concluded that the factors set forth in Colorado River favored the court abstaining from exercising its jurisdiction. However, the court declined to dismiss the case and instead determined that a stay of proceedings pending the conclusion of the state court case was the appropriate action. Accordingly, the court stayed the federal suit until the resolution of the state court interpleader action.

Provider Claims

Second Circuit

Superior Biologics NY, Inc. v. Aetna, Inc., No. 20 CIVIL 5291 (KMK), 2022 WL 4110784 (S.D.N.Y. Sep. 8, 2022) (Judge Kenneth M. Karas). Healthcare provider Superior Biologics NY, Inc. sued a collection of ERISA-governed healthcare plans, Aetna, Inc., and its subsidiaries under Section 502(a)(1)(B) of ERISA and for promissory estoppel under New York law for underpayment of pharmacological intravenous immunoglobulin treatments it provided to covered patients. Defendants moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). They argued that each of the plans at issue includes anti-assignment provisions that preclude plaintiff from suing. The court in its order found the provisions valid and not waived by Aetna, and therefore agreed with defendants that Superior Biologics lacked standing to sue under ERISA. Accordingly, defendants’ motion to dismiss pursuant to Rule 12(b)(1) was granted. The court therefore did not consider the motion to dismiss for failure to state a claim. As Superior Biologics was already given the opportunity to pursue discovery and had already amended its complaint, the court dismissed with prejudice.

Withdrawal Liability & Unpaid Contributions

Seventh Circuit

International Bhd. of Elec. Workers v. Great Lakes Elec. Contractors, No. 21 C 5009, 2022 WL 4109718 (N.D. Ill. Sep. 8, 2022) (Judge Elaine E. Bucklo). Defendant Great Lakes Electrical Contractors, Inc. was a participating employer in plaintiff International Brotherhood of Electrical Workers Local No. 150’s multiemployer pension plan. Pursuant to a collective bargaining agreement it was required to make contributions to the fund on behalf of covered employees. Great Lakes Electrical was owned by defendant Richard P. Anderson. On June 3, 2018, Great Lakes Electrical’s collective bargaining agreement expired, and its obligation to make new contribution to the fund ended. Under the Multiemployer Pension Plan Amendments Act (“MPPAA”) of ERISA, employers who cease contributions to a multiemployer pension fund incur withdrawal liabilities, but, as relevant here, employers in the construction and building industry are exempt from withdrawal liabilities unless the employer “continues to perform work in the jurisdiction of the collective bargaining agreement…or resumes such work within 5 years after the date on which the obligation to contribute under the plan ceases.” So, when Great Lakes Electrical resumed business operations well within 5 years of the expiration of the collective bargaining agreement, the fund assessed withdrawal liability against the employer in the amount of $263,390. The fund filed this suit after Great Lakes Electrical did not make its required payments. “On July 18, 2022, the parties stipulated that (Great Lakes Electrical) was responsible for the full withdrawal liability assessed by the Fund, plus interest, liquidated damages, and collection costs.” The question left for the court to decide in this order was the personal liability of defendant Anderson. The fund argued that Mr. Anderson, who continued operations as an unincorporated sole proprietorship in 2021, was under common control with Great Lakes Electrical, and the fund should therefore be able to recover the withdrawal liability jointly and severally against not only Great Lakes Electrical but also personally go after Mr. Anderson. The court agreed with the fund that under the plain text of the withdrawal exemption for the construction industry a withdrawal had occurred, and the fund may impose withdrawal liability against the new entity of the employer. Holding otherwise, the court expressed, “would frustrate ‘almost the entire purpose of the (MPPAA),’ which is ‘to prevent the dissipation of assets required to secure vested pension benefits.’” Thus, in accordance with MPPAA, Mr. Anderson’s sole proprietorship became jointly and severally liable thanks to its continued covered work, and the fund’s motion for summary judgment on this issue was accordingly granted.

In our two cases of the week, 401(k) plan fiduciaries defeated claims by participants that they breached their duties under ERISA with respect to investment fees.

In the first case, Albert v. Oshkosh Corp., No. 21-2789, __ F.4th __, 2022 WL 3714638 (7th Cir. Aug. 29, 2022) (Before Circuit Judges Easterbrook, St. Eve, and Jackson-Akiwumi), a participant in a 401(k) plan brought a putative class action lawsuit against fiduciaries of the plan for allegedly allowing the plan to pay unreasonably high recordkeeping and administration fees, failing to adequately review the plan’s investment portfolio to ensure that each investment option was prudent, and maintaining investment advisors and consultants who charged unreasonably high fees and/or had poor performance histories. The district court granted the defendants’ motion to dismiss and the Seventh Circuit on appeal reviewed the dismissal in light of the Supreme Court’s decision in Hughes v. Northwestern University, 142 S. Ct. 737 (2022), which was issued during the pendency of the appeal.

Before getting to the merits of the dismissal, however, the court addressed and quickly dispatched defendants’ argument that Mr. Albert lacked Article III standing to sue because he never held some of the challenged investments in his own investment account. The court concluded that Mr. Albert’s allegations that he was invested in at least some actively managed funds was sufficient to confer standing at the pleading stage for his investment-management fee claims.

The court then turned to the imprudence claims. First, the complaint challenged the plan’s payment of $87 per participant in recordkeeping fees when, according to the complaint, plans of similar size in terms of participants and dollars invested paid between $32 and $45 per plan participant. The Seventh Circuit affirmed the dismissal of this claim, holding that nothing in Hughes requires plan fiduciaries to regularly solicit bids for services and the Seventh Circuit has previously rejected such a requirement. In this regard, the court noted that claims based on imprudent recordkeeping fees could survive a motion to dismiss in other circumstances but did not describe what those circumstances might be.

The court held that the complaint likewise contained insufficient detail to state claims that the plan overpaid for actively managed funds and for investment advisor fees. The court also rejected what it viewed as a novel claim that the plan fiduciaries should have selected some higher-cost share classes of certain mutual funds because these funds would have netted more for the plan overall due to revenue sharing. In the court’s view, ERISA could not be read to require the fiduciaries to engage in such an analysis when selecting funds.

The court more quickly dispatched the remaining claims. With respect to Mr. Albert’s breach of loyalty claim, the court saw nothing untoward about the selection of SIA, a subsidiary of the plan’s investment manager, Fidelity, as an investment advisor for the plan, particularly when Mr. Albert did not identify any comparator investment advisors. The duty to monitor claims, the court concluded, were derivative of the fiduciary breach claims and the dismissal of the claims for fiduciary breach doomed the monitoring claims.

Finally, the court concluded that Mr. Albert failed to state a prohibited transaction claim under ERISA Section 406 by merely alleging that the plan contracted with Fidelity and SIA, both of whom were statutory “parties in interest” with respect to the plan. The court appeared to recognize that Mr. Albert’s contention that such allegations state a prohibited transaction claim is consistent with the literal terms of Section 406, and with case law from the Seventh Circuit and elsewhere recognizing that such transactions are prohibited, and that the burden of proving, as an affirmative defense, that they are reasonable and thus permissible lies with the defendant. Nevertheless, the court concluded that holding that payments for routine services are prohibited would lead to “absurd” results.

The court thus affirmed the dismissal of the case in its entirely.

The plaintiffs in the second case, Rozo v. Principal Life Ins. Co., No. 21-2026, __ F.4th __, 2022 WL 4005339 (8th Cir. Sep. 2, 2022) (Before Circuit Judges Smith, Colloton, and Shepherd), fared no better, even after a bench trial. In this case, a plan participant brought suit against Principal Life Insurance Co. for a class of participants who invested in a Principal investment product called the Principal Fixed Income Option (PFIO), claiming that Principal breached its duty of loyalty and engaged in prohibited transactions with regard to the compensation it received under the PFIO.

The PFIO operated in a rather complex manner. Principal created a new sub-fund, called a Guaranteed Investment Fund (GIF), every six months and set the Guaranteed Interest Rate (GIR) for each by setting “deducts” or predictions about the risks and costs it would bear by guaranteeing the future rate over the 10-year life of the GIF until maturity. Under this complicated system, the higher the deduct that Principal set, the greater the amount of its compensation and the less the plan and its participants would earn at the end of the day.

In an earlier phase of the case, the district court dismissed on the basis that Principal was not a fiduciary, but the Eighth Circuit reversed. The case then proceeded to a bench trial, at the conclusion of which the court concluded that Mr. Rozo failed to prove that Principal acted disloyally, and that Principal met its burden of establishing its fees were reasonable, thereby defeating the prohibited transaction claim.

The Eighth Circuit affirmed. Mr. Rozo claimed that Principal acted in its own self-interest, and thus disloyally, by setting the deducts so as to increase its profits. The court rejected the notion that it was disloyal for Principal, as a fiduciary, to act in part to further its own pecuniary interests, holding that this tension between Principal’s interests and the plan’s established a conflict of interest that required the court to scrutinize Principal’s actions more closely to determine its state of mind in setting the deducts. According to the Eighth Circuit, the “district court determined that Principal set the CCR according to a shared interest with participants ‘to establish a CCR that will appropriately account for Principal’s risks and costs in offering the PFIO.’” The court of appeals agreed with this analysis. Moreover, after describing at length the expert and other testimony presented, the Eighth Circuit concluded that the district court “did not clearly err by finding that the deducts were reasonable and set by Principal in the participants’ interest of paying a reasonable amount for the PFIO’s administration.”

The court likewise affirmed the district court’s judgment in Principal’s favor on the prohibited transaction claim. In this regard, the court noted that ERISA Section 408 sets a reasonable expense exemption to ERISA’s Section 406 prohibition on self-dealing. Reiterating that the district court did not err in concluding that the rates set by Principal were reasonable, the Eighth Circuit affirmed the district court’s conclusion that Principal had met its burden of establishing the exemption.

There is much to ponder in these two decisions. At a minimum, they are vivid illustrations of the difficulties of bringing successful suits challenging the fees and investment returns for ERISA pension plans.

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

Attorneys’ Fees

Seventh Circuit

Averbeck v. The Lincoln Nat’l Life Ins. Co., No. 20-cv-420-jdp, 2022 WL 3754735 (W.D. Wis. Aug. 30, 2022) (Judge James D. Peterson). After plaintiff Tamara Averbeck filed a suit under Section 502(a) of ERISA seeking reinstatement of terminated long-term disability benefits, The Lincoln National Life Insurance Company swiftly and voluntarily reinstated her claim and paid past-due benefits. Ms. Averbeck subsequently submitted briefing demonstrating that this move by Lincoln was a testament to the strength of her case and constituted some degree of success on the merits entitling her to an award of attorney’s fees under Section 1132(g)(1). Having examined Ms. Averbeck’s briefing on the issue, the court was satisfied that the merits of her case were indeed strong given the medical evidence provided, the award of benefits from the Social Security Administration, and the errors that Lincoln National made during its benefit determination process. The court also accounted for the fact that Lincoln National’s voluntary decision to overturn its original denial was done under a more stringent standard than it had originally applied, which indicated even the insurer recognized the strength of the case against it. For these reasons, the court found Ms. Averbeck entitled to a reasonable award of attorney’s fees, expenses, and costs, and encouraged the parties to reach an agreement on the proper amount.

Ninth Circuit

Cherry v. Prudential Ins. Co. of Am., No. 21-27 MJP, 2022 WL 3925304 (W.D. Wash. Aug. 30, 2022) (Judge Marsha J. Pechman). On May 2, 2022, the court granted summary judgment in favor of plaintiff Andrew Cherry on his Section 502(a)(1)(B) claim for reinstatement of long-term disability benefits against the Prudential Insurance Company of America. The court concluded that Mr. Cherry was disabled as defined by the plan, and that his lumbar radiculopathy was his disabling condition. The court rejected Prudential’s assertion that Mr. Cherry was disabled from a mental illness, namely somatic symptom disorder. Mr. Cherry also brought a fiduciary breach claim against Prudential, which has not yet been resolved. Prior to the court’s order granting summary judgment in favor of Mr. Cherry on his claim for benefits, Mr. Cherry’s attorneys at the time, Chris Roy and Jesse Cowell, moved to withdraw as counsel. As the motion for withdrawal was proper under the Washington Rules of Professional Conduct, the motion was granted. Mr. Cherry’s former counsel have moved for an award of attorneys’ fees for their work. The court began its discussion by assessing Mr. Cherry’s entitlement to a fee award under the Ninth Circuit’s five Hummell factors and concluded that all five favored an award of fess. First, the court expressed that Prudential’s actions demonstrated “both culpability and bad faith,” by relying “on its consulting physicians who misrepresented statements from Cherry’s physician to justify termination” and by claiming “that Cherry’s condition was somatic and therefore terminated Cherry’s benefits on that ground.” The court also acknowledged that Prudential, which has over $1.7 trillion in assets, is able to satisfy a fee award. Furthermore, the court stressed how an award of fees may deter Prudential from acting in the same manner in the future, and that this deterrence will be to the benefit of other plan participants. Finally, Mr. Cherry, who was awarded summary judgment, prevailed on the merits. Having determined that Mr. Cherry’s counsel are entitled to an award of fees, the court considered the reasonableness of the fees requested. Attorney Chris Roy requested an hourly rate of $600. Because a court in 2017 awarded Mr. Roy, who has been practicing since 1999, a rate of $500 an hour, the court felt an increase of $100 to be appropriate after five years and awarded the requested hourly rate. Attorney Jesse Cowell requested an hourly rate of $500. The court concluded that Mr. Cowell did not provide enough evidence to support this rate and reduced the hourly rate to $475 per hour. Mr. Roy sought fees for 90.2 hours, and Mr. Cowell sought fees for his 97.5 hours. The court reduced Mr. Roy’s requested number of hours by 11.5 for the time he spent familiarizing himself with the case. However, the court also increased Mr. Roy’s hours by 2.2 for the time he spent writing the reply. The court applied no further changes to the billed hours and rejected Prudential’s argument that the block billing submitted was improper. The court was also unpersuaded by Prudential’s argument that counsel should not be entitled to fees as they withdrew prior to the court issuing its judgment. The withdrawal was proper, ethical, and done in good faith according to the court, and counsel were thus entitled to fees for their work performed. Applying the lodestar, the court awarded Mr. Roy $48,540.00 in fees and Mr. Cowell $46,312.50 in fees, for a total of $94,852.50. Finally, the court granted Prudential’s request to stay the fee award, as required by Ninth Circuit precedent, so long as Prudential posts a supersedeas bond consisting of 125% of the award.

Breach of Fiduciary Duty

Second Circuit

Soft Drink, Brewery Workers & Delivery Employees, Indus. Emps., Warehousemen, Helpers & Miscellaneous Workers, Great N.Y. v. Ulrich, No. 17-CV-137 (KMK), 17-CV-7023 (KMK), 2022 WL 3904106 (S.D.N.Y. Aug. 30, 2022) (Judge Kenneth M. Karas). The Soft Drink, Brewery Workers and Delivery Employees, Industrial Employees, Warehousemen, Helpers, & Miscellaneous Workers, Greater New York and Vicinity, Local Union No. 812, its Health Fund, and the Health Fund’s trustees brought related actions against the Union’s former Vice President and former trustee of the Health Fund, defendant John Ulrich. The Union moved for summary judgment on its LMRA and New York Labor Law claims based on Mr. Ulrich’s failure to return Union Property cellphone, tablet, and laptop. The Health Fund plaintiffs moved for summary judgment on their ERISA claims for breach of fiduciary duty based on extortion related to bribes Mr. Ulrich took to keep on the plan’s third-party administrator, Crossroads Healthcare Management. The court granted both motions, finding no genuine dispute of material fact regarding the allegations and relief available for the claims. As for the ERISA claims, there was no dispute that Mr. Ulrich violated Section 406(b) by soliciting thousands of dollars in kickbacks from Crossroads, as he pled guilty to the conspiracy and was sentenced to jail time for it. Furthermore, the court agreed with plaintiffs that Section 409(a) of ERISA provides for disgorgement. Plaintiffs offered information to the court that the retention of Crossroads as the third-party administrator cost the plan $1,007,228.78 in unnecessary fees. The court therefore awarded judgment in the same amount for the ERISA violations.

Third Circuit

Cajoeco, LLC v. Benefit Plans Admin. Servs., No. 17-cv-07551 (KSH) (JSA), 2022 WL 3913395 (D.N.J. Aug. 31, 2022) (Judge Katharine S. Hayden). Plaintiffs are a small business, Cajoeco LLC, and its owners, husband and wife Norman and Carmen Mais. Plaintiffs instituted a retirement plan in 2007, and hired defendants, Benefit Plans Administration Services, Inc., Harbridge Consulting Group, and Consulting Actuaries International, Inc. to provide administration and actuarial services to the plan. Over many years, Mr. Mais electively made a series of investments in his own account to a friend’s restaurant group. Although only briefly alluded to in the decision, it seems these investments were disastrous and resulted in great losses. Plaintiffs have sued defendants arguing that they were ERISA fiduciaries and breached their duties in connection with the plan. Defendants moved for summary judgment, arguing that they were merely third-party plan administrators who provided only ministerial services to the plan and thus shielded from functional fiduciary status under ERISA as outlined by the Department of Labor’s guidelines. Defendants also asserted a counterclaim in which they argued that plaintiffs were plan fiduciaries and that it was their negligent investments of plan assets that was the cause of harm. The court agreed with defendants that their roles performing actuarial and professional consulting services, preparing reports, advising participants of their options and rights under the plan, and making professional recommendations regarding plan administration all fell squarely within the “purely ministerial functions” defined by the Department of Labor. The court found that the record made clear that defendants did not have discretionary authority or control over the plan and instead acted at the direction and instruction of plaintiffs. “That Mais learned of the (restaurant) investment opportunity on his own and continued to invest without meaningful consultations with defendants are circumstances that easily demonstrate defendants’ input was not the ‘primary basis’ for making the investments.” Based on its examination of the record, the court concluded that defendants could not be considered ERISA fiduciaries and accordingly granted defendant’s motion for summary judgment. As for defendant’s counterclaim, the court found that the relief it seemed to seek was dismissal of the action against them. Thus, the court dismissed for mootness and failure to state claim defendant’s counterclaim.

Class Actions

Eighth Circuit

Carrol v. Flexsteel Indus., No. 21-CV-1005-CJW-MAR, 2022 WL 4002313 (N.D. Iowa Sep. 1, 2022) (Judge C.J. Williams). In this order the court granted plaintiffs’ unopposed motions for final approval of settlement, service fees, attorneys’ fees, costs, and class administrator fees in this class action brought under ERISA, the Worker Adjustment and Retraining Notification Act of 1988, and Iowa labor laws. The court began its discussion by affirming its position that the $1,275,00.00 settlement is fair, reasonable, and adequate under the Eighth Circuit’s Marshall factors given the strength of each parties’ merits and the complex nature of this termination and severance class action. The court also stated that notice was proper and satisfied the requirements of the Class Action Fairness Act and those of the Federal Rule of Civil Procedure 23. Additionally, no complaints have been filed, and a fairness hearing was held this August. For these reasons, the court approved the settlement and dismissed the claims of the suit with prejudice. The court also granted the proposed service fees for the named class representatives and awarded $7,500 each to two of the class reps and $2,500 each to the remaining four class representatives. Counsel’s request for $1,275,000 in attorneys’ fees (representing one-third of the settlement fund) was also granted. The court found the amount fair given counsel’s 500 hours of work on the case, the contingency nature of their fee arrangement, and their experience and professionalism litigating the case, praising them for the “high quality” of their legal work. Finally, the court granted the request for $3,770.55 in litigation costs, and the $12,409.00 in fees to the class administrator, Simpluris, for its work calculating and distributing settlement proceeds.

Disability Benefit Claims

First Circuit

Cutway v. Hartford Life & Accident Co., No. 2:22-cv-00113-LEW, 2022 WL 3716210 (D. Me. Aug. 29, 2022) (Judge Lance E. Walker). Plaintiff Kevin Cutway commenced this action against Hartford Life & Accident Company after the insurer discovered it had failed to offset Mr. Cutway’s monthly payments by the amount he was receiving for disability benefits from the Social Security Administration for over two years and notified Mr. Cutway that it would cease making future payments to him until it had recouped the $52,000 of overpayments made by its error. Mr. Cutway argues in his suit that Hartford should be estopped in equity from exercising its contractual right to recoupment of overpayments because the overpayments were the result of Hartford’s own lack of care in administering the plan. The case will likely not be resolved until the end of the year. In the interim, Mr. Cutway has moved for a temporary restraining order or preliminary injunction, requesting the court order Hartford to resume monthly long-term disability payments to Mr. Cutway. In his affidavit Mr. Cutway attests that without his payments from Hartford he currently lacks sufficient income to pay his bills and is suffering financial hardship. On top of that, his disability prevents him from pursuing gainful employment. While the court at present stated it is not certain that Mr. Cutway “will succeed in whole or in part…he appears to have a colorable claim with sufficient justification in the record.” It was clear to the court that Mr. Cutway will suffer harm if his motion is not granted, while the money matters far less to Hartford. Recognizing the difference in situations between a disabled individual and a multibillion-dollar insurance company, the court stated that “the mere existence of the overpayment strongly suggests that the sums involved are not of special concern to Hartford or the Plan.” On balance, the court was moved by Mr. Cutway’s need for preliminary injunctive relief, and therefore granted the motion, ordering Hartford to recommence payments so long as the order remains in effect or until resolution of the case.

Second Circuit

Santorelli v. Hartford Life & Accident Ins. Co., No. 3:20-cv-1671 (JAM), 2022 WL 3996959 (D. Conn. Sep. 1, 2022) (Judge Jeffrey Alker Meyer). In May 2019, plaintiff Rebecca Santorelli was hospitalized for extreme foot pain and numbness. During her 12-day hospital stay, Ms. Santorelli was diagnosed with a vascular disorder called granulomatosis. Her illness was stabilized, and she was discharged from the hospital, but the illness left her immunocompromised with lingering pains that were treated by pain-suppressing steroids. Unable to work her desk job at the office, Ms. Santorelli applied for disability benefits. Her claim for short-term disability benefits was granted and paid; however, Hartford Life & Accident Insurance Company denied her claim for long-term disability benefits, concluding that the illness did not prevent her from performing any of the essential duties of her sedentary work. In resolving the parties cross-motions for judgment under de novo review, the court concluded that Hartford failed to address whether working in an office was an essential duty of Ms. Santorelli’s occupation. If Ms. Santorelli was unable to work from home, the court stated that she may be entitled to disability benefits due to her compromised immune system and potential need to rest her feet and legs. However, the court felt the record pertaining to whether Ms. Santorelli’s job would let her work from home was sparse and therefore concluded the best course of action was remanding the case to Hartford for reconsideration.

Ninth Circuit

Neumiller v. Hartford Life & Accident Ins. Co., No. C22-0610 TSZ, 2022 WL 3716838 (W.D. Wash. Aug. 29, 2022) (Judge Thomas S. Zilly). In 2019, plaintiff Julie Neumiller began medical leave after she was diagnosed with a painful disorder called trigeminal neuralgia. She then applied for disability benefits. The following year, Ms. Neumiller returned to work part-time. Her insurer, defendant Hartford Life & Accident Insurance Company, continued paying her monthly benefits under the plan’s “Return to Work Incentive.” When her employer paid her a trimester bonus that increased her monthly salary to above 60% of her pre-disability income for that period, Hartford ended the monthly payments. Additionally, Hartford applied Ms. Neumiller’s elective pre-tax contributions to her 401(k) plan to her current monthly earnings. Ms. Neumiller appealed Hartford’s inclusion of both her bonuses and her retirement contributions to its calculations of her current monthly earnings. Hartford upheld its decision during the internal appeals process. Ms. Neumiller subsequently brought this action, seeking to recover her benefits under the policy. The parties moved for judgment under Federal Rule of Civil Procedure 52 and agreed to the de novo review standard. The court in its decision held that “Current Monthly Earnings” is a broad, comprehensive, and unambiguous term that includes all earnings an employee receives from his or her employer, including bonuses and elective savings contributions. Accordingly, the court found Hartford had properly calculated Ms. Neumiller’s earnings and appropriately terminated benefits. Hartford was therefore awarded judgment under Rule 52.

Sanchez v. Hartford Life & Accident Ins. Co., No. 2:20-cv-03732-JWH-JEM, 2022 WL 4009176 (C.D. Cal. Sep. 2, 2022) (Judge John W. Holcomb). Plaintiff Bernardo Sanchez is a veteran who suffers from PTSD, anxiety, and depression. Although he was originally diagnosed with PTSD decades ago stemming from his service in the Marine Corps, his mental illnesses worsened in 2019 due to a hostile work environment. Mr. Sanchez applied for short-term disability benefits. His claim was denied by Aetna Life Insurance Company on the ground that the medical documentation in support of the diagnoses lacked required details outlining restrictions and limitations, diagnostic test results, and information on the medications prescribed. During his administrative appeal, Mr. Sanchez did not provide the additional information Aetna stated it required for him to perfect his claim. Additionally, the short-term disability policy does not provide coverage for mental or physical “occupational” illnesses, which is defined broadly in the plan. After exhausting the administrative appeal for his short-term disability claim and choosing not to submit a claim for long-term disability benefits on futility grounds, Mr. Sanchez commenced this suit. The parties each moved for summary judgment. Applying arbitrary and capricious review, the court concluded that Aetna’s denial was not an abuse of discretion, and “Aetna officials reasonably determined that Sanchez presented insufficient medical evidence to establish functional impairment.” As neither Mr. Sanchez nor his providers provided evidence to Aetna “beyond mere diagnoses and certification” to prove that he met the plan’s definition of disability, the court concluded Mr. Sanchez failed to meet his burden establishing his entitlement to benefits under the plan. Furthermore, even if the medical evidence had supported a conclusion that Mr. Sanchez is disabled, the court stressed that Mr. Sanchez’s claim would still not be covered under the plan because it is encompassed by the plan’s broad definition of an “occupational illness.” Finally, the court rejected Mr. Sanchez’s futility argument in support of his decision not to submit a claim for long-term disability benefits because the two plans are distinct from one another and a denial under the short-term policy therefore does not necessarily “render pursuit of a LTD claim futile.” Accordingly, Mr. Sanchez’s claim for benefits under the long-term disability plan was denied without prejudice, and the court entered judgment in favor of Hartford on the short-term disability claim.

Medical Benefit Claims

First Circuit

Turner v. Liberty Mut. Ret. Benefit Plan, No. 20-11530-FDS, 2022 WL 3841119 (D. Mass. Aug. 30, 2022) (Judge F. Dennis Saylor IV). On behalf of himself and a class of similarly situated individuals, plaintiff Thomas Turner brought an ERISA suit against the Liberty Mutual Retirement Benefit Plan, the Liberty Mutual Medical Plan, the Liberty Mutual Retirement Benefit Plan Retirement Board, Liberty Mutual Group Inc., and Liberty Mutual Insurance Company. In his complaint, Mr. Turner asserts that defendants incorrectly calculated cost-share obligations for post-retirement medical benefits by failing to account for employees’ years of service with an insurance company acquired by Liberty Mutual, Safeco Insurance Co. Mr. Turner worked for Safeco from 1980 until the year of the acquisition in 2008. He maintains that he was not rehired at the time of the transition because he did not reinterview for his job, his compensation did not change, and Liberty Mutual always considered the date he began work with Safeco in 1980 as his hire date at Liberty Mutual, which was reflected in pay slips and compensation statements. Furthermore, he claims that he and fellow Safeco employees were repeatedly told that they would continue working for Safeco, under the Liberty Mutual Group umbrella. Mr. Turner asserts that he was informed multiple times that he would receive cost-sharing credit for post-retirement health benefits based on both his pre-merger years with Safeco and his time post-merger with Liberty Mutual. However, when Mr. Turner began formally inquiring about retirement benefits and actively attempting to retire in 2017, Liberty took a new position. Liberty asserted that Mr. Turner’s grandfathered benefits from Safeco were only for 12 years instead of 28 years because of a freeze that Safeco had enacted, and he was not entitled to any years of service for his time with Liberty. Mr. Turner pushed back and expressed that his interpretation of plan documents meant he should be entitled to 37 years of service for his combined years he worked at Safeco and Liberty Mutual. Based on more conversations Mr. Turner had with benefit administrators, Mr. Turner postponed his retirement believing that action would lead to attainment of benefits from his years of service at both companies. Liberty Mutual acknowledged that Mr. Turner was a serious problem for them. One of the employees in charge of informing Mr. Turner of his benefits eligibility put into an email, “He’s constantly asking where all of this is in writing and the SPD is not that explicit. I’m sure he will sue once he retires.” Recognizing its own vulnerability and the plan’s ambiguity, Liberty Mutual changed the plan language in February 2019, expressly removing the grandfathered Safeco benefits. On May 1, 2019, Mr. Turner retired. After appealing unsuccessfully to Liberty Mutual for the benefits he believed he was entitled to, Mr. Turner commenced this suit. Mr. Turner asserted four claims: (1) a claim under Section 502(a)(1)(B) seeking a determination of the plan terms, clarifying rights to benefits under the plan, and seeking benefits; (2) a claim for equitable relief under Section 502(a)(3); and (3+4) claims alleging violations of Section 502(c)(1) for failure to supply requested information. Liberty Mutual moved for summary judgment on claim 1. Mr. Turner argued that summary judgment should be denied. He argued that the plan documents guaranteed him vested benefits for years of service to both companies, that the 2019 summary plan description was an amendment to the plan that did not properly follow the procedures for an amendment, and that the plan documents included in both the January and February 2019 summary plan descriptions were ambiguous and any ambiguities create a genuine issue of material fact precluding summary judgment. Liberty Mutual argued that the February SPD controls and that it was not a plan amendment but a plan clarification not subject to the same procedures. Additionally, Liberty argued that Mr. Turner was never entitled to additional benefits and is therefore not entitled to relief under the terms of the plans. Ultimately, the court held that the January SPD and not the February SPD controls. However, the court went on to conclude that under the January SPD’s unambiguous language, Mr. Turner’s post-retirement medical benefit was not a vested benefit, especially as “plaintiff fails to identify language in any SPD or Plan document that a reasonable factfinder could interpret as granting the vested benefit he claims.” Therefore, the court granted Liberty Mutual’s motion for summary judgment as to the Section 502(a)(1)(B) claim.

Pension Benefit Claims

Third Circuit

Campbell v. Royal Bank Supp. Exec. Ret. Plan, No. 19-798, 2022 WL 4009512 (E.D. Pa. Sep. 2, 2022) (Judge Joel H. Slomsky). During his tenure, plaintiff Joseph Campbell was the President and Chief Executive Officer of Royal Bank America and Royal Bancshares of Pennsylvania Inc. and a participant in the Royal Bank Supplemental Executive Retirement (top-hat) Plan governed by ERISA, the defendant in this suit. In 2017, the Bryn Mawr Trust Company acquired Royal Bank and terminated the Plan. When the plan was terminated, Mr. Campbell received a lump sum payment of $3,924,910. The payment was calculated using the Citi Rate as its discount rate. Mr. Campbell filed a claim with Bryn Mawr Trust Company stating that his lump sum payment was too low per the plan terms which required the use of the 5-Year United States Treasury Note discount rate, “as set forth in Section 6.2” of the Plan. The Plan denied Mr. Campbell’s claim for benefits, and Mr. Campbell filed his suit under Section 502(a)(1)(B) to recover the difference in the amount he was paid and the higher lump sum payment he believed he was entitled to under the plan. The Plan argued that it applied an appropriate actuarial equivalent discount rate and Mr. Campbell is therefore not entitled to a higher payment. A trial was held last October. The court came to its final decisions in this order, and ultimately concluded that Mr. Campbell was correct that the plan required the use of the 5-Year United States Treasury Note discount rate and finding otherwise would render Section 6.2 of the plan, the only section of the plan that “provides any methodology for calculating the lump sum payments after a Change of Control,” meaningless. Thus, the Plan is “not suspectable to two different interpretations” and Mr. Campbell was found by the court to be entitled to a payout worth $432,026 more than he initially received, plus interest, attorney’s fees, and costs.

Sixth Circuit

Vest. v. The Nissan Supplemental Exec. Ret. Plan II, No. 3:19-cv-01021, 2022 WL 3973910 (M.D. Tenn. Aug. 29, 2022) (Judge Eli Richardson). For nine years, plaintiff Rebecca Vest was a senior employee at Nissan North America, Inc., until 2018, when she resigned from the company. As a Vice President, Ms. Vest was a participant in the Nissan Supplemental Executive Retirement Plan II. After leaving the company, Ms. Vest applied for benefits under the plan. Her application was denied under the plan’s non-competition provision because Ms. Vest began to work for a tire manufacturer. Ms. Vest appealed this denial, arguing that it was nonsensical that a tire manufacturer from which Nissan purchases tires could be construed as a “competing company” under the plan’s non-compete provision. When the denial was upheld, Ms. Vest pursued federal legal action. She brought two claims, a claim for benefits under ERISA Section 502(a)(1)(B), and an alternative claim for breach of contract. She moved for summary judgment on her claim for benefits and moved to voluntarily dismiss her breach of contract claim as preempted by ERISA. As a preliminary matter, the court stated that its consideration of whether Ms. Vest was entitled to benefits revolved around answering (1) whether she was eligible under the plan, and if so (2) whether she was disqualified from benefits due to working for a “competing company.” First, the court held that Ms. Vest, who held a senior position at Nissan and worked for the company for over five years, was eligible for benefits under the plan “absent any circumstances justifying disqualification for benefits.” Next, the court concluded that the Administrative Committee’s decision was entitled to de novo review because it was not delegated with the authority to decide that a participant was disqualified from receiving benefits under the non-compete clause. However, the Senior Vice Presidents’ vote denying Ms. Vest’s claim, the court concluded, was subject to arbitrary and capricious review, as it was given discretionary authority to make such a determination under the plan. Having so decided, the court first weighed the denial under de novo review. Ms. Vest was able to convince the court that her new employer was not a competing company, and the Administrative Committee’s denial was therefore incorrect. The court then examined the denial under the heighted deferential review standard and concluded that the denial was “not only incorrect under de novo standard of review but is also arbitrary and capricious.” To conclude that a tire company was a competing company to Nissan, “the SVPs would have had to interpret the word ‘competing’ in a manner that is irrational (and) goes against its plain meaning.” The court accordingly found that Ms. Vest met her burden demonstrating her entitlement to judgment and granted her motion. Additionally, the court found an award of benefits to be the proper remedy and awarded benefits as well as pre- and post-judgment interest and attorneys’ fees. Finally, Ms. Vest’s breach of contract claim was dismissed with prejudice as preempted by ERISA.

Eighth Circuit

Gelschus v. Hogen, No. 21-3453, __ F. 4th __, 2022 WL 3712312 (8th Cir. Aug. 29, 2022) (Before Circuit Judges Gruender, Benton, and Grasz). During her employment at Honeywell International, Inc., Sally A. Hogen contributed to a 401(k) plan. In 2002, Ms. Hogen divorced her husband Clifford C. Hogen. As part of their divorce, the Hogens signed a marital termination agreement, within which they agreed Ms. Hogen “will be awarded, free and clear of any claim on the part of (Mr. Hogen) all of the parties’ right, title, and interest in and to the Honeywell 401(k) Savings and Ownership Plan.” The Hogens did not remain close following the divorce, and hardly to spoke to one another in the nearly two decades that followed. After signing the marital termination agreement, Ms. Hogen submitted a change-of-beneficiary form to Honeywell attempting to allocate a third of her 401(k) benefits (33 1/3%) to each of her three siblings. Strangely, her plan included designation instructions requiring allocation to be in whole percentages. Because Ms. Hogen didn’t use whole percentages, Honeywell never changed her designation, and Mr. Hogen remained the beneficiary. Honeywell claimed that it attempted to contact Ms. Hogen about this. The record is clear that she took no further steps to change her beneficiary. In 2019, Ms. Hogen died after years of long-term health issues. Her 401(k) plan had nearly $600,000 in it at the time of her death. Honeywell paid that money to Mr. Hogen. Ms. Hogen’s brother, and the representative of her estate, Robert F. Gelschus, sued Honeywell for breach of fiduciary duty, and sued Mr. Hogen for breach of contract, unjust enrichment, conversion, and civil theft. The district court granted summary judgment to both Mr. Hogen and Honeywell and against Mr. Gelschus. It concluded that Honeywell complied with ERISA’s requirements to read the plan documents as written and thus did not breach its fiduciary duty. The district court stated that regarding Mr. Hogen, Mr. Gelschus did not have standing, and that in addition his claims failed on the merits because there was no genuine dispute of fact that Mr. Hogen had not breached the divorce agreement. Mr. Gelschus appealed. The Eighth Circuit affirmed in part and reversed in part. Specifically, the Circuit Court agreed with the lower court that Honeywell had not breached its duties under ERISA and had acted in accordance with the plan documents and the plan’s instructions requiring allocation in whole percentages. However, the court of appeals found clear error in the district court’s ruling with regard to defendant Hogen. The Eighth Circuit found that Mr. Gelschus had third-party beneficiary standing as both the personal representative of the estate and as one of his sister’s three intended designees to the benefits. Additionally, the Eighth Circuit held that there was indeed a genuine dispute pertaining to whether the Hogens had intended for the marital termination agreement to waive Mr. Hogen’s beneficiary interest in the 401(k) plan, as a jury could and likely would interpret the language of the agreement and the relationship between the parties after their divorce as meaning Mr. Hogen had no right to the hundreds of thousands of dollars in the plan. “Much evidence shows that Sally would not have wanted to preserve 401(k) funds for Clifford” especially given the fact that Ms. Hogen attempted to change the beneficiaries to her siblings. The court stated that “it is a reasonable inference that Sally, aware of her declining health, would not have preserved plan funds unless she believed that the MTA precluded them from passing to her ex-husband, whom she had avoided for nearly two decades.” Accordingly, the Eighth Circuit reversed the lower court’s summary judgment for Mr. Hogen on the breach of contract and unjust enrichment claims and remanded for further proceedings. Summary judgment for Mr. Hogen on the conversion and civil theft claims was affirmed, as the Eighth Circuit expressed these claims are primarily intended to provide recovery for stolen merchandise or property from a retail store and not for the circumstances presented here.

Pleading Issues & Procedure

Sixth Circuit

Am. Elec. Power Serv. Corp. v. Fitch, No. 22-3005, __ F. App’x __, 2022 WL 3794841 (6th Cir. Aug. 30, 2022) (Before Circuit Judges Guy, Moore, and Clay). American Electric Power Service Corporation, on behalf of its ERISA plan, brought a Section 502(a)(3) suit against the parents of a child who died tragically in a car crash seeking to impose an equitable lien over funds the parents received from two third-party “at-fault” settlements for reimbursement of medical bills the plan paid in connection with the accident. The federal district court concluded that the probate exception deprived it of subject-matter jurisdiction because the Probate Court of Franklin County, Ohio had already approved the settlement and distribution and had allocated the money to the family. Accordingly, without weighing in on the merits of the case, the district court dismissed the complaint. American Electric appealed. Relying on the Supreme Court’s clarification of the probate exception in Marshall v. Marshall, 547 U.S. 293 (2006), the Sixth Circuit understood its role as answering the question “whether this actions seeks to reach the same res over which the probate court has custody?” The district court in its dismissal had concluded that granting American Electric’s requested relief would have imposed upon the jurisdiction of the Probate Court over the distribution of the estate and would have required the district court to dispose of the money “in a manner inconsistent with the Probate Court’s judgment.” American Electric’s appeal, the Sixth Circuit stressed, simply failed to address “why this conclusion (by the district court) was flawed.” American Electric, the court went on, simply failed to engage in a discussion of why the lower court’s reasoning was incorrect which “given the nuances entailed in the probate exception” was an incurable shortcoming for its appeal. The Sixth Circuit thus agreed with the parents that American Electric “forfeited any challenge to the district court’s conclusion that the federal court lacks jurisdiction to hear its claims.” As such, the court of appeals upheld the lower court’s holding that the probate exception applies and affirmed the dismissal. Circuit Judge Guy dissented from his colleagues and stated that he disagreed with the conclusion American Electric forfeited review of whether the probate exception applies. To the contrary, Judge Guy found American Electric’s briefing clearly argued that the lower court had erred by not accepting its claim that the proceeds from the settlements were not in the custody of the probate court and therefore expressly addressed the issue of whether its action seeks to reach the same res as the res within the custody of the probate court. As such, Judge Guy expressed that were he in the majority he would have reversed and remanded for further proceedings.

Wolf v. Life Ins. Co. of N. Am., No. 21-35485, __ F.4th __, 2022 WL 3652966 (9th Cir. Aug. 25, 2022) (Before Circuit Judges Gilman (6th Cir.), Ikuta and Miller)

Employers provide all types of benefits to their employees, and most of us focus on the big-ticket ones: health and retirement. However, employers often provide other types of insurance as well, including accidental death insurance. At first glance, this kind of insurance may seem fairly straightforward, but because of the inherent ineffability of the word “accident,” it has been the subject of an inordinate amount of litigation. Much of that litigation has involved Life Insurance Company of North America, which has taken an aggressive position in its disputes with beneficiaries.

This case is no exception. Scott Wolf was insured by LINA under an ERISA-covered accidental death benefit plan when he died in a one-car collision. At the time, he was intoxicated and driving at high speed in the wrong direction down a one-way road. He hit a speed bump, lost control of his car, and flipped it into a submerged ditch. The medical examiner listed his cause of death as “Accident.”

LINA, however, did not agree. When Scott’s father, the beneficiary under the policy, submitted a claim for benefits, LINA informed him that Scott’s death was not in fact an “accident.” LINA stated that the policy only insured a “sudden, unforeseeable, external event that results, directly and independently of all other causes.” Scott’s death did not qualify because it was “a foreseeable outcome of his voluntary actions, and thus, the loss was not a result of a Covered Accident” as defined by the policy.

Specifically, LINA stated that, while it could not determine what Scott’s subjective state of mind was, a “reasonable person with a similar background” to Scott “would have viewed serious injury or death as highly likely to occur…it is reasonable to assume that a person of similar education and age-based experience would have understood that serious injury or even death would be highly likely to occur while operating a vehicle…with a BAC of 0.20% and speeding at 6.5 times over the legal speed limit, the wrong way down a road.”

Scott’s father unsuccessfully appealed to LINA, after which he filed this action against LINA under ERISA. The parties filed cross-motions with the district court, which acknowledged that Scott had engaged in “extremely reckless behavior.” However, the court granted summary judgment to Scott’s father, concluding that “a reasonable person would not have viewed [Scott’s fatal] injury as substantially certain to occur as a result of his actions, rendering his death accidental under the policy.” LINA appealed this decision to the Ninth Circuit.

The Ninth Circuit noted that the only issue on appeal – whether Scott’s death was an “accident” – was a narrow one, and that it was governed by the framework set forth in the court’s prior ruling in Padfield v. AIG Life Insurance Co., 290 F.3d 1121 (9th Cir. 2002). That framework consisted of an “overlapping subjective and objective inquiry” in which the court “first asks whether the insured subjectively lacked an expectation of death or injury. If so, the court asks whether the suppositions that underlay the insured’s expectation were reasonable, from the perspective of the insured… If the subjective expectation of the insured cannot be ascertained, the court asks whether a reasonable person, with background and characteristics similar to the insured, would have viewed the resulting injury or death as substantially certain to result from the insured’s conduct” (emphasis added).

Conducting the subjective inquiry first, the Ninth Circuit agreed with the district court that “there is insufficient evidence in the administrative record to determine Scott’s subjective expectation at the time he died.” As a result, the court moved on to the objective inquiry, “which is where the crux of the parties’ disagreement lies.”

Here, LINA shifted gears. Rather than argue, as it had in its denial letters and to the district court, that Scott’s death was “substantially certain” under the Padfield test, LINA instead argued to the Ninth Circuit that “because the policy defines the term ‘accident’ as ‘a sudden, unforeseeable, external event,’ the district court should have asked whether Scott’s death was ‘reasonably foreseeable.’” In other words, LINA contended that its interpretation was not constrained by Padfield, despite its previous arguments, and that the court should instead only look to the policy language.

The Ninth Circuit was unimpressed by LINA’s change of tactics. The court observed, and LINA admitted, that LINA “never made this argument to the district court.” The court noted that it “generally do[es] not consider arguments raised for the first time on appeal,” and declined to do so in this case because “not only did LINA fail to raise the argument below, it also did not use that test when initially denying Wolf’s claim.” The court stated that allowing LINA to advance its new argument would “unduly prejudice” Mr. Wolf.

LINA contended that there was no prejudice and it had not created “a new reason for denial” because it had consistently quoted the policy language in its correspondence. However, the court determined that the difference between the test LINA actually used (whether the death was “substantially certain” under Padfield) and its new proposed test (whether the death was “reasonably foreseeable”) was significant because the new test was “a far broader standard.” Indeed, the court explained that the two definitions “are at opposite poles” because the first definition asks “whether the victim could reasonably have expected to escape the injury,” whereas the second asks “whether the victim could reasonably have expected to suffer the injury.”

Having dispatched LINA’s new argument, the Ninth Circuit returned to the second part of the Padfield inquiry. The appellate court agreed with the district court that while Scott “undoubtedly engaged in reckless conduct, the record does not show that his death was ‘substantially certain’ to result from that conduct.” The court distinguished LINA’s authorities on this point by noting that they involved deferential review of claim denials under the abuse of discretion standard of review, while the standard of review in this case was the stricter de novo standard. Indeed, “the two circuits that have considered this question de novo both held that the drunk-driving deaths at issue were accidents.”

Ultimately, the Ninth Circuit conceded there was “no doubt” that “drunk driving is ill-advised, dangerous, and easily avoidable.” However, “many accidents, if not most, involve an element of negligence or even recklessness on the part of the insured.” Even then, death is still “a statistical rarity.” Thus, “the record before us does not show that Scott’s particular act of drunk driving was substantially certain to result in his death. The district court therefore correctly determined that Scott’s death was an ‘accident’ and thus covered[.]”

Finally, the court had some advice for LINA and other insurers. The court observed that the term “accident” was “an inherently difficult concept to fully capture,” and suggested that if insurers wanted to avoid “conflicting bodies of caselaw that deal with obscure issues of contractual interpretation,” it could do so by writing better policies. “The solution for insurance companies like [LINA] is simple: add an express exclusion in policies covering accidental injuries for driving while under the influence of alcohol, or for any other risky activity that the company wishes to exclude.”

Judge Ikuta wrote a brief concurrence, in which she stated that ordinarily a court should look to the “explicit language” of a benefit plan in order to effectuate “the clear intent of the parties.” In this case, that would likely mean ignoring Padfield – which has traditionally been used only where the relevant policy failed to define “accident” – and applying the “reasonably foreseeable” test proposed by LINA. However, Judge Ikuta was compelled to rule against LINA, and apply Padfield, because LINA “forfeited its argument that the insurance policy’s own definition of ‘accident’ applies.”

Plaintiff was represented by Kantor & Kantor attorneys Glenn Kantor, Sally Mermelstein, Sarah J. Demers, and Stacy Monahan Tucker.

Breach of Fiduciary Duty

Third Circuit

Berkelhammer v. Automatic Data Processing, Inc., No. 20-5696 (ES) (JRA), 2022 WL 3593975 (D.N.J. Aug. 23, 2022) (Judge Esther Salas). Plaintiffs Beth Berkelhammer and Naomi Ruiz, plan participants and beneficiaries, commenced a putative breach of fiduciary duty and prohibited transaction class action against Automatic Data Processing, Inc., ADP TotalSource Group, Inc., and the administrative committee of the ADP TotalSource Retirement Savings Plan. Defendants moved to dismiss. The motion was granted in part and denied in part. Among things typically challenged in these types of ERISA class actions like excessive fees and underperforming funds, this suit also alleged something novel – that defendants permitted its third-party administrator, Voya Institutional Plan Services, LLC, through its affiliate Voya Financial Advisors, Inc., “to use plan participant data to market and sell non-Plan investment products to participants.” This was allowed, plaintiffs asserted, because defendants “had a separate and conflicting business arrangement with Voya.” Essentially, as alleged in the complaint, defendants and Voya were cross-selling to one another, scratching each other’s backs and profiting to the detriment of participants. This original aspect of plaintiff’s complaint was in fact the area in which they encountered pleading problems. Although the court was satisfied that plaintiffs sufficiently alleged the remainder of their claims, and had standing to bring their suit, plaintiffs’ failure to “offer a single case supporting their fiduciary breach claim” with regard to the data use and confidential information was deeply problematic to the court. In fact, the court stated that a plan’s recordkeeper should have certain personal information on plan participants. “If anything, it might be imprudent not to disclose that information to Voya as recordkeeper.” Nor could plaintiffs allege to the court’s satisfaction sufficient facts explaining “what processes were flawed with respect to permitting Voya…to use plan participant data for non-plan purposes.” Finally, the court stated that plaintiffs needed to “outline the conduct of comparable fiduciaries in like situations” for the court to compare and draw inferences. The court thus dismissed, without prejudice, the breach of fiduciary duty claim regarding the data. Additionally, plaintiffs were found not to have adequately alleged a prohibited transaction claim regarding this same issue because plan participant data is not the same as plan assets. Again, dismissal was without prejudice, and the court expressly left open the possibility that “Plaintiffs may plausibly plead that plan participant data, when collected and aggregated, can be used as something of value to benefit the Plan and participants of the Plan.”

Sixth Circuit

Parker v. GKN N. Am. Servs., No. 21-12468, 2022 WL 3702072 (E.D. Mich. Aug. 26, 2022) (Judge Sean F. Cox). Retirement plan participants commenced a putative class action lawsuit claiming that defendants GKN North America Services, Inc., its board of directors, and its benefit committee breached their fiduciary duties of prudence, loyalty, and to monitor to plan participants and beneficiaries, causing them financial harm, by failing to investigate or select lower-cost investment options, by retaining imprudent investments within the plan, and by charging excessive fees. Defendants moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Separately, the U.S. Chamber of Commerce moved for leave to participate as amicus curiae. The court first addressed the Chamber of Commerce’s motion. The court stated that the Chamber of Commerce’s motion “and its accompanying proposed brief simply rehash arguments already made by the parties and summarize case outcomes from other jurisdictions irrelevant to this case.” Accordingly, the court denied the Chamber’s motion. Turning to the motion to dismiss, the court first addressed plaintiffs’ breach of prudence claim. Defendants argued that the complaint failed to state a claim because its focus was not on the process of the plan administration, but instead improperly centered on the outcome of fund performance with the benefit of hindsight. The court disagreed and ultimately concluded that plaintiffs adequately alleged imprudence with regard to the failure to investigate or select lower-cost alternative investments and regarding imprudent plan investments. However, the imprudence claim regarding the excessive recordkeeping fees was found to lack sufficient apples-to-apples benchmarks specifying the services provided for the fees charged and was accordingly determined to be insufficient. Plaintiffs’ breach of fiduciary duty of loyalty claim was likewise found to be deficient. “Without the required allegations of fiduciary self-dealing, it is not reasonable for the Court to find a breach of fiduciary duty under the duty of loyalty theory.” Finally, because it had concluded that plaintiffs sufficiently stated an imprudence claim, the court allowed the derivative failure to monitor claim to proceed.

Seventh Circuit

Laabs v. Faith Techs., No. 20-C-1534, 2022 WL 3594054 (E.D. Wis. Aug. 22, 2022) (Judge William C. Griesbach). A participant in the Faith Technologies, Inc. 401(k) Retirement Plan brought this putative class action against Faith Technologies, its board of directors, and 30 Doe defendants challenging their process administering the plan and selecting and maintaining funds with high costs. Plaintiff originally asserted five claims in her complaint – (1) breaches of prudence and loyalty regarding excessive recordkeeping and administrative fees; (2) breaches of prudence and loyalty regarding excessive management fees; (3) failure to monitor co-fiduciaries in regard to the plan’s recordkeeping and administrative fees; (4) failure to monitor regarding the management fees; and (5) engaging in prohibited transactions. Defendants moved to dismiss. On September 30, 2021, the Magistrate Judge issued a report and recommendation granting in part and denying in part defendants’ motion to dismiss. Specifically, the report recommended the court grant defendants’ motion regarding excessive recordkeeping and administrative fees (counts 1 and 4), as well as dismiss the prohibited party-in-interest transaction claim and the claims for breaches of duty of loyalty, but in all other respects deny the motion. The parties each filed objections to the Magistrate’s report. The court stayed the case pending the Supreme Court’s decision in Hughes v. Northwestern. After the Hughes stay was lifted, the court in this order resolved each of the parties’ objections. As defendants’ arguments relied heavily on the Seventh Circuit’s decision in the Hughes case, which was overturned by the Supreme Court, their objections to the report were considerably weakened. First, neither party objected to the portion of the report that dismissed the breach of loyalty and prohibited transaction claims. Thus, the court adopted the report as to those claims. Plaintiff did however object to the portion of the report having to do with her claims of prudence and monitoring pertaining to the high-cost funds and stable value investments, disclosure of revenue-sharing, and investment services. In its analysis, the court found that as currently pled it could infer defendants had acted imprudently in the ways outlined in the complaint, and defendants’ arguments in favor of dismissal were “factual questions…inappropriate at the pleading stage.” Therefore, the court found plaintiff appropriately stated these claims, and defendants’ motion to dismiss was only granted with respect to the claims plaintiff did not object to.

O’Driscoll v. Plexus Corp., No. 20-C-1065, 2022 WL 3600824 (E.D. Wis. Aug. 22, 2022) (Judge William C. Griesbach). This case presented an interesting contrast to the Laabs decision by the same judge summarized above. As in Laabs, defendants’ motion to dismiss this putative breach of fiduciary duty class action was also stayed pending the Supreme Court’s decision in Hughes. Drawing the opposite conclusion from Laabs, Judge Griesbach in this decision granted defendants’ (Plexus Corp., the company’s board of directors, and Doe individuals) motion. The court ultimately found that plaintiff lacked Article III standing for her breach of duty of prudence claim and that her complaint did not allege “she suffered any concrete injury-in-fact.” Despite plaintiff’s request that the court focus on defendants’ fiduciary process rather than the outcome, the court was adamant that “the outcome is relevant to whether Plaintiff suffered a harm.” Furthermore, the court stated that defendants are not required to disclose information about revenue-sharing arrangements under Seventh Circuit precedent and accordingly dismissed that claim. The court also held the breach of fiduciary duty of loyalty claim was not sufficiently distinct from the already dismissed duty of prudence claim. Finally, the derivative failure to monitor claim failed was dismissed because plaintiff failed to state an underlying duty of prudence claim.

Nohara v. Prevea Clinic, Inc., No. 20-C-1079, 2022 WL 3601567 (E.D. Wis. Aug. 23, 2022) (Judge William C. Griesbach). This action is the third of four decisions this week from Judge Griesbach ruling on motions to dismiss putative breach of fiduciary duty class actions stayed awaiting the Supreme Court’s ruling in Hughes. Here plaintiffs are participants of the Prevea Clinic, Inc. 401(k) and Retirement Plan who have sued Prevea and its board of directors for failing to review the plan’s investment portfolio and for retaining underperforming and excessively costly funds. Plaintiffs voluntarily dismissed their breach of fiduciary duty of loyalty claims, leaving them with breach of fiduciary duty of prudence and failure to monitor claims. The court dismissed plaintiffs’ claim pertaining to defendants’ failure to disclose fees charged to the Plan for the same reasons given in the O’Driscoll decision, namely Seventh Circuit precedent does not require ERISA fiduciaries to disclose this information. In all other respects, the court denied the motion to dismiss, concluding that under the standards outlined in Hughes, plaintiffs had plausibly alleged breaches of prudence. Plaintiffs’ derivative failure to monitor claims will thus also proceed. The decision ended with the court accepting as true plaintiffs’ allegations that the board of directors are fiduciaries. Accordingly, the motion to dismiss was granted in small part and otherwise denied as outlined above.

Glick v. ThedaCare Inc., No. 20-C-1236, 2022 WL 3682863 (E.D. Wis. Aug. 25, 2022) (Judge William C. Griesbach). This case is the last of the quartet of Judge Griesbach rulings in breach of fiduciary duty class actions stayed pending Hughes. In this suit, plaintiff Joseph B. Glick, a participant of the ThedaCare, Inc. Retirement and 403(b) Savings Plan, brought a proposed class action against ThedaCare Inc. and its board of directors in connection with the plan’s excessive fees and imprudently low net returns. In this decision, the court granted in part the motion to dismiss. As a preliminary matter, the court addressed Mr. Glick’s standing under Article III. To begin, the court stressed that this plan is a defined contribution and not a defined benefit plan, and therefore defendants’ reliance on the Supreme Court’s decision in Thole was misplaced. “Plaintiff has a ‘concrete stake’ in the lawsuit because if Plaintiffs wins his suit, he alleges that his account balance will be greater based on excessive fees and expenses returned to his individual account by Defendants.” Thus, the court concluded Mr. Glick had sufficiently alleged an injury in fact conferring him with standing to assert his claims. However, like its other three decisions this week the court dismissed Mr. Glick’s breach of fiduciary duty claim related to defendants’ failure to disclose revenue sharing information with participants. The court also dismissed the breach of duty of loyalty claims, deciding they were based on the same allegations as the duty of prudence claims and better understood as imprudence claims than as allegations of “disloyal acts.” The remainder of the claims were found to be properly pled, and the court concluded a person reading the complaint could plausibly infer imprudence and failure to monitor in the manner alleged.

Disability Benefit Claims

Fourth Circuit

Foggie v. Am. Nat’l Red Cross Long Term Disability Plan, No. 1:21-cv-0001 (PTG/JFA), 2022 WL 3580745 (E.D. Va. Aug. 18, 2022) (Judge Patricia Tolliver Giles). Plaintiff Rhea Foggie has been disabled since February 2006 from several long-standing musculoskeletal and chronic pain disorders. Ms. Foggie received long-term disability benefits from her ERISA-governed plan from the onset of her disability until December 2018, when her benefits were terminated. Ms. Foggie, in her suit asserting claims under Section 502(a)(1)(B) and (a)(3), argued that the only substantive change that occurred within that time was that her plan’s claim administrator switched from MetLife to Liberty Life Assurance Company of Boston. Defendants argued, to the contrary, that the record was replete with evidence demonstrating that Ms. Foggie’s conditions had improved. Liberty further expressed that in addition there was new evidence which it considered. This consisted of reviews of the record performed by six physicians Liberty hired, and an analysis of Ms. Foggie’s transferrable skills done by a vocational consultant, also hired by Liberty. In addition to disagreeing with the denial, Ms. Foggie also asserted that Liberty failed to provide her with a full and fair review thanks to the denial letter’s use of generic language and its failure to inform her how to perfect her claim. The parties each moved for summary judgment and debated the appropriate standard of review. As a preliminary matter, the court found abuse of discretion review applicable given the plan’s amendment in 2018 which granted the claim administrator discretionary authority. Under this deferential standard, the court agreed with Liberty that substantial evidence supported its decision and that the denial letters were in compliance with ERISA and adequately put Ms. Foggie on notice of why her claim was denied and how she could improve her claim. Thus, the court denied Ms. Foggie’s motion for summary judgment and granted summary judgment in favor of defendants.

Rupprecht v. Reliance Standard Life Ins. Co., No. 1:21-cv-01260 (AJT/JFA), 2022 WL 3702086 (E.D. Va. Aug. 26, 2022) (Judge Anthony J. Trenga). Plaintiff Walter Rupprecht’s long-term disability benefits were terminated after 24 months when his policy switched from a definition of disability in which an individual had to be unable to perform his or her own occupation to disability defined as a participant being unable to perform any occupation. Defendant Reliance Standard Life Insurance Company informed Mr. Rupprecht that he no longer met the plan requirements for continued benefits past 24 months and he was able to perform sedentary work positions. According to Mr. Rupprecht’s complaint, Reliance Standard’s denial letter failed “to specify why Plaintiff was being denied benefits and (claimed) the vocational review was flatly contradicted by the submitted opinions of (his) treating physicians and did not explain to him what information would be needed on appeal to ‘perfect the decision’ as required under law.” The parties each moved for summary judgment. The court began its analysis by determining whether Mr. Rupprecht had exhausted his administrative remedies before filing suit. Mr. Rupprecht asserted that Reliance Standard’s failure to decide his appeal within the allotted 45-day period under ERISA should constitute exhaustion. Reliance countered that it had invoked a 45-day extension and was awaiting the results of an Independent Medical Examination before issuing its final decision. Thus, Reliance argued, Mr. Rupprecht’s failure to attend that evaluation and his decision to pursue relief under Section 502(a) of ERISA amounted to failure to exhaust administrative remedies. The court sided with Mr. Rupprecht, stressing that under the relevant provision a claim administrator can only extend the 45-day decision window under “special circumstances.” The court further stated that Reliance did not provide adequate notice to Mr. Rupprecht for an extension. Accordingly, the court held that Mr. Rupprecht’s suit was not time-barred. Next, the court scrutinized the parties’ differing positions on the applicable standard of review. Mr. Rupprecht argued that de novo review was appropriate here as Reliance declined to issue a decision within the appeal window. Reliance maintained that the plan’s discretionary authority clause should trigger abuse of discretion review. Again, admonishing Reliance for its conduct during the administrative appeal, the court sided with Mr. Rupprecht, holding that it would apply de novo standard to its review. The court went on to hold that Mr. Rupprecht’s claim has been “deemed denied” by Reliance’s failure to issue a decision, and the court turned to reviewing the application for disability benefits on its merits. That review too was favorable to Mr. Rupprecht. Based on the medical evidence and the opinions of Mr. Rupprecht’s treating physicians, the court concluded that “Plaintiff qualified as Totally Disabled…Plaintiff provided ample evidence to Reliance…Reliance, on the other hand, relies on a nurse’s evaluation of the medical records that is flatly inconsistent with and contradicted by the treating physician’s opinions.” The decision ended with the court granting summary judgment in favor of Mr. Rupprecht and awarding him back benefits as well as reinstating his disability benefits going forward. The court also requested Mr. Rupprecht submit briefing in support of an award of attorneys’ fees and costs.

Fifth Circuit

Khan v. AT&T Umbrella Benefit Plan No. 3, No. 3:21-CV-1367-S, 2022 WL 3650632 (N.D. Tex. Aug. 23, 2022) (Judge Karen Gren Scholer). Plaintiff Imran Khan sued the AT&T Umbrella Benefit Plan No. 3 after his claims for short-term and long-term disability benefits were denied. Mr. Khan has been diagnosed with multiple sclerosis and suffers from pain associated with the disease. However, this subjective measure of the severity of his illness put him at a disadvantage for obtaining benefits. Even Mr. Khan’s own physicians, who supported a finding that he was disabled, admitted that objective evidence including “imaging and (pain) specialists are not finding much pathology to correlate to his severity of pain.” It was this shortcoming, a lack of objective evidence supporting the disabling pain, which the plan’s administrator, Sedgwick Claims Management Services, utilized in order to deny the claims. The Plan and Mr. Khan each moved for summary judgment. In his motion, Mr. Khan argued that the denials were an abuse of discretion because defendant failed to fairly consider his complaints of pain and declined to reconsider his claims after he submitted additional evidence to the record. For its part, the Plan argued that its denials were not arbitrary and capricious because its reviewing physicians had considered Mr. Khan’s complaints of pain, and substantial evidence within the record did not corroborate the self-reported pain or functional limitations. The Plan further stated that its refusal to consider the additional evidence Mr. Khan submitted was not an abuse of discretion because the documents were submitted after it had issued its final denials. The court sided with the Plan. “While it is an abuse of discretion to ignore a claimant’s subjective complaints of pain, the administrative record here does not support Plaintiff’s contention that Defendant did so.” Thus, the court agreed that under the terms of the plans, defendant’s denials were reasonable. Furthermore, the court did not feel that the Plan’s refusal to consider the evidence Mr. Khan submitted to the report to be an abuse of discretion as Mr. Khan had already exhausted his internal appeals and the submission of evidence only one month before Mr. Khan commenced his suit “did not give Defendant the ‘fair opportunity’ to reconsider its decision.” The court concluded by stating the evidence itself would not even have bolstered Mr. Khan’s claim or have changed the outcome. For these reasons, the court granted summary judgment in favor of defendant.

Eighth Circuit

Foss v. Standard Life Ins. Co., No. 20-cv-2449 (WMW/TNL), 2022 WL 3579749 (D. Minn. Aug. 19, 2022) (Judge Wilhelmina M. Wright). Plaintiff Caroline Foss sought a court order overturning her denial of long-term disability benefits. Ms. Foss has been diagnosed with several overlapping mental health disorders, including ADHD, anxiety, and major depressive disorder. By the time Ms. Foss applied for disability benefits in 2019, her symptoms included gastrointestinal problems, sleep disturbances, an inability to perform self-care, memory loss, severe anxiety, and “at least one breakdown resulting in an emergency room visit.” Ms. Foss’s application for benefits was denied by her insurer, defendant Standard Insurance Company. Standard concluded that per the terms of the plan, Ms. Foss needed to demonstrate that her disability precludes her from performing her same category of job with any employer, and in Standard’s view Ms. Foss’s disability was directly tied to her current employer. Although Foss’s particular work situation might be causing her stress, “her medical records do not provide clinical evidence of symptoms so severe as to impair her ability to work for all employers.” In the court’s arbitrary and capricious review of the parties’ cross-motions for summary judgment, it found that a reasonable person could draw the same conclusion as Standard, and the denial was therefore not an abuse of discretion. As such, the court awarded summary judgment to Standard and denied Ms. Foss’s summary judgment motion.

Ninth Circuit

Smith v. Pitney Bowes, Inc., No. 6:21-cv-1422-MC, 2022 WL 3577036 (D. Or. Aug. 19, 2022) (Judge Michael J. McShane). Plaintiff Stan Smith has been disabled a long time, nearly three decades, and he has been receiving disability benefits throughout. Mr. Smith continues to receive disability benefits. That is not the dispute among the parties in this suit. Rather, the parties dispute whether the amount of disability benefits being paid to Mr. Smith is proper. Mr. Smith argues that his 1993 election for the plan’s buy-up option for benefits totaling 66.6% of his pay should be honored, and defendant Pitney Bowes Inc. has therefore been inappropriately paying him benefits equaling only 50% of his salary. Since the 1990s communication between the parties has been sporadic, and the court concluded that the unusual fact pattern presented here meant both that the claim was not untimely, and that Pitney Bowes did not significantly fail its duties under ERISA through inexcusable ongoing procedural errors. In resolving the parties’ cross-motions for summary judgment under abuse of discretion review, the court acknowledged the novelty of issues here but ultimately concluded that defendant’s interpretation of the plan was reasonable and supported by the record. The company concluded that Mr. Smith’s disability onset date was December 30, 1993, and he was therefore ineligible for the higher valued benefits. Accordingly, defendant’s motion for summary judgment was granted, and plaintiff’s motion for judgment was denied.

Eleventh Circuit

Brewer v. Unum Grp. Corp., No. 1:21-cv-694-CLM, __ F. Supp. 3d __, 2022 WL 3593133 (N.D. Ala. Aug. 22, 2022) (Judge Corey L. Maze). Brewer v. Unum Grp. Corp., No. 1:21-cv-694-CLM, 2022 WL 3643490 (N.D. Ala. Aug. 22, 2022) (Judge Corey L. Maze). There were two orders this week in this action alleging the wrongful denial of long-term disability benefits to plaintiff Robin Brewer. In the first, the court adjudged Ms. Brewer’s motion for partial summary judgment. Ms. Brewer argued that the failure of defendants Unum Group Corporation and Unum Life Insurance Company of America to issue a ruling on her claim during the administrative review process within the 45-day window allowed by ERISA’s claims-procedural regulation should strip Unum of its discretionary authority. Unum countered that it had triggered an extension to the 45-day timeframe thanks to a “special circumstance.” Unum further argued that even if the court were to conclude that its decision was untimely, such a conclusion should not automatically remove its entitlement to deferential review. The court rejected each of these arguments presented by Unum. First, the court held that “a circumstance cannot be special if it is common or expected during the appeals process.” Here, Unum’s “special circumstance” was a need for Ms. Brewer to review and respond to new information, which the court decided was not an “unexpected or out of the ordinary” circumstance warranting an extension to an insurer’s decision-making time limitation under ERISA. Furthermore, Unum’s failure to issue a timely decision “was not a de-minimis violation” in the eyes of the court, especially because Unum failed to demonstrate that the violation was “for good cause or due to matters beyond the control of the plan.” Thus, the court found that Unum failed to exercise discretionary authority when it denied the claim after she had filed her lawsuit, and therefore granted Ms. Brewer’s motion for partial summary judgment on thew de novo standard of review. The court then issued its second decision in the case in which it resolved the parties’ discovery dispute. Ms. Brewer moved for discovery of 11 interrogatories, 21 requests for production, and 5 depositions on three topics: (1) the completeness of the administrative record, (2) Unum’s compliance with internal procedures and fiduciary duties, and (3) bias and conflicts of interest among those involved with the administration of her claim for benefits. Having decided that its review would be de novo, the court stated that its only role will be deciding whether Unum’s decision was wrong and if so to reverse it. “To prevail, Brewer must prove that she was qualified for long-term disability benefits under her plan.” In order to do this, the court stated she will need her complete administrative record. Therefore, discovery into facts which relate to her qualification for benefits under the plan should be permitted, the court held, even under de novo review. Thus, this portion of her discovery motion was granted. However, the court also stressed a balance in permitting discovery. Discovery that the court felt would not strengthen Ms. Brewer’s claim included everything under the broad categories of “compliance, conflicts, and bias.” “Discovery into whether Unum complied with internal procedures and fiduciary obligations doesn’t help answer whether Brewer was entitled to LTD benefits.” The motion was therefore granted in part and denied in part, and the court ordered Unum to produce all its non-privileged documents that bear on Ms. Brewer’s entitlement to benefits that are not currently part of the administrative record.

Discovery

Sixth Circuit

Winders v. Standard Ins. Co., No. 2:22-cv-155, 2022 WL 3654894 (S.D. Ohio Aug. 25, 2022) (Magistrate Judge Elizabeth A. Preston Deavers). Plaintiff Kenneth D. Winders filed a motion for discovery in this Section 502(a)(1)(B) action regarding terminated long-term disability benefits. Defendant Standard Insurance Company opposed the motion. Mr. Winders made three arguments in favor of discovery. First, in his most adventurous argument, Mr. Winders contended that the Supreme Court’s recent decision in the capital punishment case of the Boston Marathon bomber, United States v. Tsarnaev, 142 S. Ct. 1024 (2022), abrogated the Sixth Circuit’s decision in Wilkins v. Baptist Healthcare System, Inc., 150 F.3d at 619, regarding discovery in ERISA cases. In reply, Standard argued that “Tsarnaev did not abrogate Wilkins because a ‘trial court’s discretion to conduct voir dire in a high-profile criminal death penalty case is simply not related to substantive adjudication of ERISA cases under the careful balancing intended by Congress in enacting ERISA.” The court agreed with Standard and would not grant discovery on this basis. Second, Mr. Winders argued that Standard’s conflict of interest as the entity that both decides and pays claims should entitle him to discovery on said conflict. Although the court agreed that Standard has a structural conflict of interest, it found that Mr. Winders’ conflict argument failed to establish a pattern of bias or explain how the discovery would prove that bias affected Standard’s ultimate decision-making. The court thus denied discovery on this basis as well. Finally, Mr. Winders asserted that discovery is appropriate because he has demanded a jury trial. Standard countered that there is no right to a jury trial in ERISA cases, and the jury demand should therefore be stricken, and discovery should not be granted on this ground. The court was not willing to strike the jury demand without Standard filing a separate motion addressing the issue formally. However, the court disagreed with Mr. Winders that discovery “is permitted in the present case simply because (he has) made a jury demand.” For the reasons stated above, the court denied the discovery motion.

Ninth Circuit

S.L. v. Premera Blue Cross, No. C18-1308-RSL, 2022 WL 3586998 (W.D. Wash. Aug. 22, 2022) (Judge Robert S. Lasnik). Plaintiffs are a family challenging Premera Blue Cross’s denial of a preauthorization request for the son’s coverage for his treatment of his mental health disorders at a residential treatment center, Catalyst, under the Amazon Corporate LLC Group Health and Welfare Plan. The denial will eventually be reviewed under the abuse of discretion standard. Before that can happen, the parties must go through discovery on the topic of Premera’s conflict of interest and how that conflict affected its benefits determination. On August 17, 2020, the court granted plaintiffs’ motion to compel production of documents “related to defendants’ adoption and utilization of the InterQual criteria for claims processing.” Plaintiffs have now moved to compel deposition of Premera on this same topic. Defendants opposed the motion and reiterated their position from their opposition to plaintiffs’ previous motion to compel, namely that the topics “do not go to the conflict of interest, …are too broad, and (they) have already produced all information (they have) on the topics.” Each of these arguments was rejected by the court. “Premera claims that deposition would not reveal any new information relevant to plaintiff’s requests. However, plaintiff need not take Premera’s word for it – he is entitled to a deposition.” The motion to compel discovery was accordingly granted.

ERISA Preemption

Third Circuit

Horizon Blue Cross Blue Shield of N.J. v. Speech & Language Ctr., No. 22-1748 (MAS) (DEA), 2022 WL 3588105 (D.N.J. Aug. 22, 2022) (Judge Michael A. Shipp). Horizon Blue Cross Blue Shield of New Jersey has sued a speech therapy service provider and the speech pathologist who owns and operates it for alleged fraudulent healthcare billing. Blue Cross claims in its complaint that it has overpaid defendants by approximately $6.5 million. Blue Cross brought its suit in state court in 2014 alleging violations of the New Jersey Insurance Fraud Protection Act, and claims for breach of contract, unjust enrichment, and negligent misrepresentation, among others. In 2019 the parties reached a settlement agreement, but defendants refused to honor the settlement and make the obligatory payments. Blue Cross again went to state court to enforce its rights, and the court ruled in favor of Blue Cross once again. However, defendants removed the case to federal court in March of this year alleging federal question jurisdiction. Blue Cross moved to remand, arguing that “the Court lacks subject matter jurisdiction, and the removal was untimely.” The court agreed. To begin, the court expressed that ERISA does not preempt the state law causes of action. “It is settled law that insurers can bring state law fraud claims against healthcare providers in state court without being preempted by ERISA.” Because resolution of the claims doesn’t require interpretation of any ERISA plan, the court was satisfied that preemption doesn’t apply. Moreover, the court concurred with Blue Cross’s untimeliness argument, stating that “removal was about eight years too late.” Thus, the court found remand to be appropriate and granted Blue Cross’s motion.

Fifth Circuit

Clayton v. Elite Rest. Partners, No. 4:22-CV-00312, 2022 WL 3581393 (E.D. Tex. Aug. 19, 2022) (Judge Amos L. Mazzant). On June 25, 2020, LaTrecia Clayton was diagnosed with cancer. She died five days later, on June 30, 2020. According to plaintiffs, treatment during that brief window of time may well have prevented her death, or at least prolonged her life. However, Ms. Clayton was without health coverage because her employer, IHOP, rehired her after its COVID closures and failed to reinstate her previous healthcare coverage despite promising Ms. Clayton that it would do so. Plaintiffs are Aaliyah Clayton and Paul Clayton, representatives of LaTrecia Clayton’s estate. They sued IHOP, Elite Restaurant Partners, and related entities in state court alleging claims of negligence, fraud in the inducement, intentional misrepresentation, and wrongful death. Defendants removed the case to federal court pursuant to federal question jurisdiction. They argued plaintiffs’ claims are completely preempted by ERISA. Plaintiffs disagreed and moved to remand the case. In this decision, the court granted the motion to remand. Examining the suit under the two-prong Davila complete preemption test, the court concluded that plaintiffs could not satisfy the first prong as they lack standing to have brought a claim under ERISA Section 502. “Since the Fifth Circuit does not recognize non-enumerated parties as having standing to sue under § 1132(a), Plaintiffs here must satisfy one of the two enumerated classes…or have been assigned benefits by a member of the enumerated classes.” As plaintiffs were neither participants nor beneficiaries and were not assigned benefits to receive derivative standing, the court held they do not have the ability to sue under ERISA, and the claims were therefore not completely preempted, making remand appropriate.

Exhaustion of Administrative Remedies

Eleventh Circuit

Landa v. Aon Corp. Excess Benefit Plan, No. 22-cv-21091-BLOOM/Otazo-Reyes, 2022 WL 3594916 (S.D. Fla. Aug. 22, 2022) (Judge Beth Bloom). Plaintiff Michael Landa commenced this action seeking recovery of benefits under the Aon Corporation Excess Benefit Plan (“the Plan”) pursuant to Section 502(a)(1)(B). At the time Mr. Landa filed suit, the Plan had issued a suspension notice informing Mr. Landa that his benefits were indefinitely suspended. This notice did not inform Mr. Landa of his rights under ERISA or the Plan’s 90-day window to reach an adverse benefits determination. In fact, by the date the suit was filed, the Plan had neither commenced payment of Mr. Landa’s benefits nor denied his claim for benefits. Regardless, after this lawsuit began, the Plan issued a “Forfeiture Notice” to Mr. Landa, and subsequently moved to dismiss the claim for failure to exhaust administrative remedies. The Plan also moved for an award of attorney’s fees pursuant to Section 1132(g). Mr. Landa opposed both motions. He argued that the court should deem him to have exhausted administrative remedies because he had no path open to him other than pursuing legal action thanks to the Plan’s actions and non-compliance, meaning he had no meaningful access to administrative review. Mr. Landa further stressed that he properly stated a claim to recover benefits. Lastly, Mr. Landa urged the court not to award attorney’s fees to the Plan. In its decision, the court referred to Eleventh Circuit precedent in Perrino v. S. Bell Tel. & Tel. Co., 209 F.3d 1309, 1315 (11th Cir. 2000), which holds in relevant part that the Eleventh Circuit only recognizes two exceptions for failure to exhaust: “(1) when resort to administrative remedies would be futile or the remedy inadequate, or (2) where a claimant is denied meaningful access to the administrative review scheme in place.” Perrino “make[s] clear that the exhaustion requirement for ERISA claims should not be excused for technical violations of ERISA regulations that do not deny plaintiffs meaningful access to an administrative remedy procedure through which they may receive an adequate remedy.” In examining the particulars of this case and applying Perrino, the court agreed with the Plan that its failure to comply with ERISA’s 90-day decision-making time frame was the type of technical violation that did not meaningfully deny Mr. Landa with access to an administrative appeals process, and therefore does not fall within one of the two exceptions to exhaustion outlined in Perrino. Accordingly, the court granted the motion to dismiss for failure to exhaust administrative remedies. Nevertheless, the court agreed with Mr. Landa that an award of attorney’s fees would be antithetical to ERISA’s guiding purposes, and not warranted given the good faith in which the case was brought, especially considering the Plan’s failure to formally deny Mr. Landa’s claim for benefits within the required timeframe. Finally, the court’s dismissal was without prejudice.

Medical Benefit Claims

Tenth Circuit

Anne M. v. United Behavioral Health, No. 2:18-cv-808, 2022 WL 3576275 (D. Utah Aug. 19, 2022) (Judge Howard C. Nielson, Jr.). In this action, as is the case in many ERISA healthcare suits challenging denials of benefits for young people receiving residential treatment, the particulars are distressing. Plaintiff is a beneficiary of the Motion Picture Industry Health Plan who suffers from severe depression and post-traumatic stress disorder stemming from a history of sexual abuse. Plaintiff’s mental health problems were so severe that she was “hospitalized at least six different times over the course of three years for depression (and) suicidality.” Help did come for plaintiff in the form of her nearly two-year-long stay at Uinta Academy, during which plaintiff “made improvements.” Despite the benefits of her treatment, defendant United Behavioral Health only paid for a small duration of the stay. Claims for benefits beyond those covered in the initial period were denied for not being medically necessary under the plan. United asserted that per the plan language and its Optum “Level of Care Guidelines” residential treatment is not appropriate for long-term care and there is a “reasonable expectation that services will improve the member’s presenting problems within a reasonable period of time.” In this suit plaintiff and her parents challenged the denials under Section 502(a)(1)(B) and brought a claim for violation of the Mental Health Parity and Addiction Equity Act. The parties each moved for summary judgment. The court began its discussion by addressing the appropriate standard of review. Although the plan grants discretion to United, the court agreed with plaintiffs that de novo review should apply because “United failed to ‘substantially comply’ with ERISA’s regulatory procedures” by issuing its denial 182 days after it received plaintiffs’ appeal. Then the court turned to addressing the denial, which asserted that plaintiff’s treatment at Uinta was not medically necessary and she could have been treated at a lower outpatient level of care. The court understood the plan language and Optum’s guidelines to mean that “long-term care is not the goal of residential treatment – to the contrary, a member is ineligible for continued service if his or her ‘condition is unchanging.’” In the eyes of the court, only short-term residential treatment care is covered under the plan. Thus, because proper care for plaintiff, the care that resulted in improvement for her disorders, took a long time it could not be deemed “acute stabilization” and was accordingly not covered under the contract terms of her ERISA plan. “Instead, this contract covers such care only if it is provided through outpatient treatment.” The court therefore concluded that the denials were proper and granted summary judgment to United. As for the Parity Act violation, the court found none. Under the terms of the plan, both medical residential inpatient nursing care and mental health residential inpatient level care imposed substantially similar requirements for coverage, and “both sets of guidelines make clear that long-term treatment will not be covered at this level of care.” Accordingly, the court granted summary judgment in favor of United on the second claim as well.

Pension Benefit Claims

Ninth Circuit

Metaxas v. Gateway Bank F.S.B., No. 20-cv-01184-EMC, 2022 WL 3702099 (N.D. Cal. Aug. 26, 2022) (Judge Edward M. Chen). Plaintiff Poppi Metaxas sued her former employer, Gateway Bank F.S.B., and the Gateway Bank Supplemental Executive Retirement Plan, seeking relief under Sections 502(a)(1)(B) and (a)(3) of ERISA. Ms. Metaxas worked as the Bank’s CEO and president before she became disabled due to ovarian cancer and migraine headaches. During her tenure with the Bank, Ms. Metaxas committed bank fraud, and in 2015, five years after leaving the bank, she pled guilty to federal conspiracy to commit bank fraud and was sentenced to a year-and-a-half in jail. Ms. Metaxas was not terminated or in any other way punished by the bank for her unlawful actions, and she voluntarily resigned from her position due to her illnesses. Ms. Metaxas’s claims for disability and termination benefits, which she made in 2013, were tolled as the criminal case against Ms. Metaxas was pending at the time. Following the criminal conviction, Ms. Metaxas’s claims were denied by defendants and the denials were upheld during the administrative appeal. Defendants concluded that Ms. Metaxas’s criminal actions did not “deserve award through” the plan, that she had not reached retirement age, that her employment status had changed making her ineligible for benefits, and she was not disabled as defined by the plan. On administrative appeal, defendants added that Ms. Metaxas was not qualified for benefits because she was terminated for cause. The parties cross-moved for summary judgment. In addition, defendants moved to strike evidence from Ms. Metaxas that extended beyond the administrative record. The court in this ruling granted in part and denied in part each party’s summary judgment motion, denied the motion to strike, and remanded to defendants “for reconsideration of Plaintiff’s eligibility for termination benefits consistent with this decision.” Weighing the conflict of interest presented by the unusual circumstances of the suit, the court applied some skepticism to the decisions made and concluded that defendants abused their discretion in two ways with regard to the termination benefits: “(1) the Initial Claim Committee lacked authority to change Ms. Metaxas’s employment status to render her ineligible for termination benefits pursuant to (the) Plan…and (2) the Appeal Committee erred in determining Plaintiff was ‘terminated for cause’ rather, she voluntarily resigned from her position.” Furthermore, the court stressed that the committees had violated ERISA regulations by changing their rationale for denying the claims in the middle of the appeals process, depriving Ms. Metaxas of a full and fair review. Accordingly, the court granted Ms. Metaxas’s motion for summary judgment on her claim for termination benefits and ordered defendants to reconsider the claim for those benefits. However, the court came to the opposite conclusion with regard to the disability benefits, concluding that substantial evidence within the record supported the denial. Thus, the court found that defendants’ decision to deny disability benefits was not arbitrary and capricious. Accordingly, the court granted summary judgment in favor of defendants regarding the disability benefit claim. Finally, the court held that Ms. Metaxas’s claim for equitable relief under Section 502(a)(3) “fails as a matter of law,” because the plan at issue is a top-hat plan and is therefore exempt from ERISA’s fiduciary duty obligations. Summary judgment was granted to defendants on this claim as well.

Pleading Issues & Procedure

Fourth Circuit

Gifford v. Burton, No. 2:21-cv-00669, 2022 WL 3702266 (S.D.W.V. Aug. 26, 2022) (Judge Joseph R. Goodwin). Plaintiff Sara Gifford was the sole beneficiary of her late husband’s 401(k) retirement plan which he received through his employment with defendant Walmart. However, a few months before his death, Mr. Gifford, without his wife’s consent, but with the help of defendant Hall Financial Advisors, LLC, requested and received a distribution of all of the funds from his Walmart 401(k) and deposited the funds into an IRA. Mr. Gifford then named his daughter, defendant Emma Gifford, as a 90% beneficiary to said IRA, leaving his wife as a beneficiary of the remaining 10%. In her suit, Ms. Gifford brought ERISA claims against all defendants alleging that spousal consent was required before Mr. Gifford could withdraw his pension funds and move them into an IRA. Additionally, Ms. Gifford asserted a negligence claim against Walmart and Hall Financial, and a claim of constructive trust against Emma Gifford. Walmart and Hall Financial moved to dismiss. They argued that ERISA does not require spousal consent for Mr. Gifford’s actions outlined above. Defendant Hall Financial additionally moved for judgment on the pleadings. Finally, because Ms. Gifford’s responses to their motions were tardy, defendants moved the court to strike the responses. All of the motions were granted. First, the court granted the motion to strike Ms. Gifford’s untimely responses because she failed to even acknowledge her tardiness, let alone assert good cause or plead excusable neglect for the lateness. Next, in a direct statement the court held that “because Plaintiff’s misunderstanding of the law is the entire basis of this lawsuit, I dismiss the Complaint in its entirety.” As the Walmart 401(k) plan was determined by the court to be both a profit-sharing and stock bonus defined contribution plan rather than a qualified joint and survivor annuity, the court concluded it is not subject to the provisions of Section 412, meaning Mr. Gifford did not need spousal consent to take the distribution under ERISA. Accordingly, Ms. Gifford failed to state a claim upon which relief could be granted, and the court dismissed the complaint.

Eleventh Circuit

Martinez v. Miami Children’s Health Sys., No. 21-cv-22700, 2022 WL 3577084 (S.D. Fla. Aug. 19, 2022) (Judge Beth Bloom). Plaintiff Eddy Martinez brought this action against his former employer, Miami Children’s Hospital System Inc., and the company’s severance plan, challenging defendants’ denial of his claim for severance benefits. The hospital asserted counterclaims against Mr. Martinez. The first of these counterclaims sought a declaration of the court pursuant to Section 502(a)(3)(B) that its decision to deny severance was proper. Mr. Martinez sought dismissal of this particular counterclaim under Rule 12 of the Federal Rules of Civil Procedure, arguing that it was redundant of his claim for benefits under Section 502(a)(1)(B). The court agreed and granted the motion. The court wrote that “the relief (the hospital) seeks is a declaration interpreting the Plan in a manner that denies Martinez the right to severance benefits, which is in effect, the converse of the relief sought by Martinez. Thus, a resolution of Martinez’s ERISA claim (for benefits) would also resolve the issues raised in Count I of the Counterclaim.”

D.C. Circuit

Serv. Emps. Int’l Union Nat’l Indus. Pension Fund v. UPMC McKeesport, No. 22-cv-249 (TSC/GMH), 2022 WL 3644808 (D.D.C. Aug. 24, 2022) (Magistrate Judge G. Michael Harvey). Plaintiff Service Employees International Union National Industry Pension Fund and its board of trustees filed this delinquent contribution ERISA suit against a hospital, UPMC McKeesport, after it failed to make its required pension contributions under the parties’ collective bargaining agreement. Defendant moved to stay. Its motion derived from a complaint it filed (hours before this action was filed) for declaratory judgment in the Western District of Pennsylvania against the Fund and the Union. That case sought a declaration that the hospital doesn’t owe any additional payments to the Fund. That declaratory judgment action, “the cornerstone of UPMC’s arguments in favor of pausing this case,” was dismissed. Accordingly, “the difficulty of litigating two concurrent lawsuits in separate jurisdictions” no longer exists and resolution of the ERISA claims here therefore no longer presents a risk of inconsistent rulings in concurrent actions. For these reasons, the motion to stay was denied.

Statute of Limitations

Eleventh Circuit

Bakos v. Unum Life Ins. Co. of Am., No. 22-11131, __ F. App’x __, 2022 WL 3696648 (11th Cir. Aug. 25, 2022) (Before Circuit Judges Wilson, Rosenbaum, Anderson). Plaintiff-appellant Angela Bakos appealed the district court’s decision to dismiss her ERISA disability benefits suit as time-barred based on her plan’s three-year statute of limitations. Despite the fact that defendant Unum Life Insurance Company of America did not specify any deadlines within the denial letters they sent to Ms. Bakos, the final denial letter did include a statement that “Bakos could request – free of charge – any documents, records, and information relevant to her claim for benefits.” Within those documents, had Ms. Bakos requested them, was information regarding the plan’s provision giving participants three years within which to bring a suit under Section 502(a) of ERISA. The district court concluded that Unum’s failure to provide “explicit notice” of the time limitation did not merit equitable tolling. Additionally, the district court held that Ms. Bakos’s arguments about actual knowledge were inapplicable because she brought a Section 502(a)(1)(B) claim for benefits and not a breach of fiduciary duty claim. In this unpublished Eleventh Circuit decision, without wasting any words, the court of appeals agreed with the district court’s dismissal and its position that Unum’s actions complied with ERISA, and that the three-year statute was enforceable making Ms. Bakos’s suit untimely. Referring to its own precedent in Pacific Harbor Capital v. Barnett Bank, 252 F.3d 1246, 1252 (11th Cir. 2001), the Eleventh Circuit reiterated its stance that there is no equitable tolling “when the plaintiffs had notice sufficient to prompt them to investigate and that, had they done so diligently, they would have discovered the basis for their claims.” Accordingly, the lower court’s order dismissing the case was affirmed.