Fleming v. Kellogg Co., No. 23-1966, __ F. App’x __, 2024 WL 4534677 (6th Cir. Oct. 21, 2024) (Before Circuit Judges Gibbons, Kethledge, and Davis)

It’s been a few months since we last covered the effective vindication doctrine here at Your ERISA Watch. For those needing a refresher, this judicially created exception to the Federal Arbitration Act (“FAA”) invalidates arbitration provisions that prevent parties from effectively vindicating any substantive rights or remedies.

The doctrine arises with some frequency under ERISA because many plan sponsors, desirous of avoiding expensive class actions, have written into their plans arbitration provisions that contain broad class or representative action waivers. Circuit courts across the country, including the Second, Third, Seventh, and Tenth, have addressed this interplay between ERISA and the FAA and have red-lighted these provisions in cases asserting claims to remedy plan losses and other plan-wide injuries resulting from fiduciary misconduct under ERISA Section 502(a)(2). This is because, as the Supreme Court held in LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248 (2008), Section 502(a)(2) actions are brought in a derivative capacity on behalf of the plan itself.

The Sixth Circuit did the same last August in Parker v. Tenneco, Inc., agreeing with its sister circuits that the arbitration provision in Parker was invalid and unenforceable because it restricted just this kind of representative plan-wide action under ERISA Section 502(a)(2) and limited monetary relief to losses to individual plan accounts. (Your ERISA Watch covered this decision in its August 28, 2024 edition.)

In an unpublished decision this week, the Sixth Circuit has invalidated a similar arbitration provision, reiterating that “ERISA contemplates both plan-wide remedies for certain breaches of fiduciary duties and the representative actions frequently employed to obtain those plan-wide remedies.” This decision overturns a district court’s dismissal of a putative class action brought by plaintiff Bradley H. Fleming asserting fiduciary breach claims in connection with excessive recordkeeping and administrative fees under Section 502(a)(2) against the fiduciaries of the Kellogg Company’s 401(k) plan.

Kellogg’s arbitration clause, which was added to the plan after the named plaintiff stopped working for Kellogg, expressly “forecloses arbitration for class, collective, and representative actions.” Kellogg amended the plan a second time to state that “‘[t]he arbitrator shall have no authority to arbitrate any claim on a class or representative basis and may award relief only on an individual basis; provided, however, that the arbitrator may award any relief otherwise available under ERISA.’”  

The Sixth Circuit held that the fiduciary breach claims asserted by Mr. Fleming under ERISA Section 502(a)(2) were representative actions brought on behalf of the plan. The court reasoned that the shared injury allegedly suffered by the Kellogg Plan because of the excessive fees can only be redressed through plan-wide relief through ERISA’s statutory mechanisms designed for this type of representative action on behalf of the plan. “Accordingly, in bringing a fiduciary breach claim under Section 502(a)(2), Fleming is acting – indeed, can only act – in a representative capacity on the Plan’s behalf.” Therefore, the court concluded, “Kellogg’s bar on representative actions necessarily infringes on the remedies available to Fleming under ERISA.”

The court was unpersuaded by Kellogg’s reliance on the Ninth Circuit’s unpublished decision in Dorman v. Charles Schwab Corp., which “upheld an arbitration clause that required individual arbitration for claims similar to Fleming’s.” Significantly, the court found the Ninth Circuit’s suggestion in Dorman “that a Section 502(a)(2) claim is ‘inherently individualized’ in the context of a defined contribution plan and that a participant can therefore only seek losses sustained by his own individual account” “cannot be reconciled with LaRue.” 

The Sixth Circuit likewise rejected Kellogg’s reliance on the arbitration provision’s “‘provided, however’ proviso,” clarifying that the effective vindication doctrine applies to any arbitration clause that forecloses a participant’s “access to a mechanism to vindicate their claims.” In the court’s view, the “problem with these representative-action waivers lies in the waivers themselves; waivers like the one at issue in Parker and Kellogg’s limit access to ERISA’s statutory remedy by foreclosing the only avenue through which a plaintiff may assert a Section 502(a)(2) claim.” Thus, “because Section 502(a)(2) claims are inherently representative,” the court concluded that “Kellogg’s clause is void on its face.”

The court next rejected Kellogg’s invitation to interpret the arbitration clause “to allow whatever relief ERISA provides.” The problem with this argument, as the court saw it, was “that, as a practical matter, the language in Kellogg’s clause is unambiguous and requires no further interpretation to enforce it according to its terms.”  In preventing a “plaintiff from proceeding in a representative manner” the arbitration clause “effectively eliminates a participant’s substantive right to bring a fiduciary breach claim under Section 502(a)(2).”

“Given the impermissible restrictions built into Kellogg’s arbitration provision and its non-severability clause,” the court found “that Kellogg’s arbitration provision is invalid and unenforceable.” The court left for another day “Fleming’s alternative argument for reversal that he did not consent to the arbitration clause” based on the fact that it was added after his employment ended.

Right now, it seems that the circuits are essentially unanimous in refusing to enforce arbitration clauses that contain class or representative action waivers in any cases asserting claims under ERISA Section 502(a)(2). This is a rare moment in ERISA litigation, as our readers know well. We’ll find out if this consensus holds.

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

Breach of Fiduciary Duty

Fourth Circuit

Hanigan v. Bechtel Glob. Corp., No. 1:24-cv-00875 (AJT/LRV), 2024 WL 4528909 (E.D. Va. Oct. 18, 2024) (Judge Anthony J. Trenga). In this putative class action plaintiff Debra A. Hanigan alleges that the fiduciaries of the Bechtel Trust and Thrift 401(k) Plan are breaching their duties of prudence and monitoring by saddling the plan with unreasonable administrative and recordkeeping fees which add up to $348 per person annually. Defendants moved to dismiss the complaint for failure to state a claim. The court granted defendants’ motion in this decision, and dismissed Ms. Hanigan’s complaint with leave to amend. The court broadly found that Ms. Hanigan’s complaint simply alleges that the fees are too high without providing any meaningful benchmark from which it could assess whether any fiduciary breach plausibly occurred. It wrote, “the Amended Complaint fails to allege specific facts that plausibly demonstrate the services provided under the…plan are comparable to the services offered by the five comparator…plans.” In addition, the court took issue with the fact the complaint compares the total $348 administrative costs “against only the administrative fees” of the five comparator plans without “any indication of what other account fees are charged” to the participants in those plans. However, the court concluded that amendment would not be prejudicial or futile and therefore dismissed the action with leave to file a second amended complaint addressing these meaningful benchmark deficiencies.

Seventh Circuit

Tyrakowski v. Conagra Brands Inc., No. 23 CV 894, 2024 WL 4528341 (N.D. Ill. Oct. 18, 2024) (Judge Georgia N. Alexakis). Plaintiff Steven C. Tyrakowski is a retiree with vested pension benefits under the Beatrice Retirement Income Plan. Under the plan, “deferred vested pension participants, such as plaintiff, were entitled to a monthly benefit. When precisely that benefit would begin, and the amount of that benefit, was up to the participant.” The plan defines “normal retirement age” as 65, and requires that participants commence receiving payment no later than age 65. But doing so may be disadvantageous because as early as age 60, the amount of monthly benefits is unreduced. Mr. Tyrakowski did not commence pension payments until his 65^th birthday, and therefore lost out on five years’ worth of unreduced monthly benefit payments under the plan. When he began receiving payments, Mr. Tyrakowski applied for retroactive benefits dating back to his 60^th birthday. This claim was denied by the plan. Mr. Tyrakowski appealed the denial. He argued that he was misinformed about his pension election options and that statements sent to him claimed that he was not eligible for benefits until age 65. He therefore contends that he is being penalized for relying on the fiduciaries’ faulty information. In this action Mr. Tyrakowski is suing for the benefits he missed out on. He asserts claims for violation of ERISA’s anti-cutback provision, fiduciary breach, and for failure to provide and maintain plan documents. The pension plan and its employee benefits committee moved to dismiss the entirety of Mr. Tyrakowski’s complaint. Their motion was granted in part and denied in part in this decision. Before tackling the claims at issue, the court clarified that it would rely on the terms of the pension plan documents because both parties agree they are authentic and rely on the documents to advance their competing interpretations of the language. The court then segued to its analysis of the anti-cutback claim. To begin, the court rejected defendants’ exhaustion arguments. It stated that failure to exhaust was not the flaw with this claim, as fairly construing Mr. Tyrakowski’s claim and subsequent appeal suggested that the plan deprived him of benefits to which he was entitled. Nevertheless, the court took issue with the merits of Mr. Tyrakowski’s anti-cutback claim. The court reviewed the plan and concluded that it did not permit early-retirement benefits to be paid retroactively, particularly because the language clearly requires that any participant wishing to commence retirement before age 65 elect to do so in writing. As such, the court held that the anti-cutback claim lacks merit, and therefore granted the motion to dismiss it, with prejudice. The court was appreciably friendlier to Mr. Tyrakowski’s fiduciary breach claim. Stressing that the plan requires participants to affirmatively elect to receive benefits before age 65 and that failure to do so would result, as here, in forfeiture of early-retirement benefits, the court found Mr. Tyrakowski’s allegations of fiduciary breach plausible because the complaint includes language from documents defendants sent him “which undercuts these” terms. Further, the court voiced a view that defendants were taking a “disingenuous” position by maintaining that communications which were silent on “the bar on retroactive payments – accurately apprised plaintiff of the material terms of the [plan.]” Accordingly, the court denied the motion to dismiss the breach of fiduciary duty claim. Mr. Tyrakowski’s luck ran out here though. The court ended its decision by granting the motion to dismiss the claim for failure to provide and maintain plan documents. It held that the plan defendants provided to Mr. Tyrakowski encompassed all of the relevant requirements and provisions of the early retirement plan and that defendants were not required to provide him with any outdated or duplicative documents. Like count one, count three was dismissed with prejudice.

Disability Benefit Claims

Eleventh Circuit

Eggleston v. Unum Life Ins. Co. of Am., No. 1:22-CV-23393, 2024 WL 4533607 (S.D. Fla. Oct. 21, 2024) (Judge Darrin P. Gayles). Plaintiff Yvette Eggleston, a former nurse at Johns Hopkins, brought this action on October 18, 2022 to recover long-term disability benefits that defendant Unum Life Insurance Company of America had recently terminated. The parties filed competing motions for summary judgment on the administrative record under an abuse of discretion review standard. Ms. Eggleston has multiple chronic pain and inflammatory conditions including arthritis, undifferentiated connective tissue disorder, fibromyalgia, sciatica, and gastrointestinal issues. Her treating providers agreed that Ms. Eggleston has an ongoing disability and that the combination of her medical conditions left her unable to work in any position. On the other hand, Unum determined that there was insufficient objective medical evidence that Ms. Eggleston lacked the functional capacity for sedentary work. Under the deferential review standard, the court could not find Unum’s determination unreasonable. Although the court recognized that Ms. Eggleston’s providers supported her continued need for long-term disability benefits, and that an independent functional capacity evaluation further backed up her self-reported symptoms, limitations, and pain levels, the court nevertheless held that Unum’s conflicting interpretation of the medical records and position that her conditions were stable and well managed by medication was not unreasonable or unsupported by evidence in the record. Citing the long-held principle that “administrators are not obliged to accord special deference to the opinions of treating providers,” the court upheld Unum’s decision. Moreover, the court found the “unremarkable fact” of Unum’s structural conflict of interest on its own insufficient to change the result. Accordingly, the court ruled that the denial was not arbitrary and capricious and entered summary judgment in favor of Unum and against Ms. Eggleston.

Discovery

Ninth Circuit

Rubke v. ServiceNow, Inc.,  No. 24-cv-01050-TLT (PHK), 2024 WL 4540756 (N.D. Cal. Oct. 21, 2024) (Magistrate Judge Peter H. Kang). This decision involves a discovery dispute over a putative ERISA class action brought against defendants ServiceNow, Inc. and the ServiceNow board of directors. On September 18, the presiding district judge issued an order granting defendants’ motion to dismiss with leave for plaintiffs to amend their fiduciary breach complaint, and a few days later, on September 26, 2024, the judge lifted the stay on discovery. Defendants seek to stay discovery, despite the court’s order lifting the stay, arguing that the order should be reconsidered in light of a pending interlocutory appeal application. Plaintiffs, on the other hand, moved to compel defendants to produce limited discovery relating to the fiduciaries’ alleged misconduct and methods employed in determining how to invest plan assets. The dispute was assigned to a magistrate, who issued this decision, granting, albeit in a slightly modified version, plaintiffs’ motion for discovery, denying defendants’ motion to stay, and issuing a protective order to help expedite defendants’ production and with any luck to “either minimize or obviate the need for delay caused by individualized confidentiality designations.” As a preliminary matter, the magistrate appeared irritated by defendants’ motion to stay discovery which was so recently ordered by the court. “This Court is not authorized to decide (or allow re-litigation of) such overall case management issues properly brought before the presiding District Judge, and this Court will not reconsider issues that have already been decided.” And to the extent defendants attempt to stay discovery for an interlocutory appeal, the magistrate characterized it as “a transparent attempt to avoid the Order lifting the stay, avoid the Order denying reconsideration, avoid the October 2 Text Order clarifying the scope of discovery now, and relitigate an issue Defendants have now lost multiple times.” Thus, the magistrate stuck with the “clear directives” in the district judge’s orders and proceeded in accordance with the limited scope of discovery set forth in them. However, before the magistrate addressed the particulars of the documents it was ordering production of, it created a couple of procedural schemes to control and shape the discovery process. The decision created a clawback method, a mechanism for asserting privilege, and the process for plaintiffs to challenge any assertions of privilege or designations of confidentiality. Also, as mentioned above, the magistrate issued the automatic protective order, which it stipulated can be modified going forward. With these procedures in place to reduce friction, the magistrate finally got to the specifics of plaintiffs’ motion. Without materially changing plaintiffs’ request, the magistrate altered the wording, making it more precise, to order defendants to produce investment policy statements, fee disclosures, meeting minutes, committee documents expressly discussing the relevant investment choices, investment monitoring reports utilized by the committee, and all other communications mentioning the monitoring and replacement of the target date funds at issue. Finally, the parties were ordered to submit weekly joint status reports to the magistrate detailing the progress leading up to the discovery deadline. One can only imagine defendants’ Bullwinkle-esque response to this decision: “curses, foiled again.”

Medical Benefit Claims

Third Circuit

L.D. v. Indep. Blue Cross, No. Civil Action 23-345, 2024 WL 4530109 (E.D. Pa. Oct. 18, 2024) (Judge Mia Roberts Perez). Plaintiffs L.D. and M.D. are a father and son who brought this action against Independence Blue Cross under ERISA to challenge its denial of medical benefits for M.D.’s residential treatment for mental health and substance use disorders. Plaintiffs asserted two causes of action, a claim for benefits under Section 502(a)(1)(B) and a claim for violation of the Mental Health Parity and Addiction Equity Act under Section 502(a)(3). The parties filed cross-motions for summary judgment. The court began its decision with its analysis of the benefits claim. As the plan grants Blue Cross discretionary authority, the court applied the arbitrary and capricious standard of review. Plaintiffs argued that the denial was an abuse of discretion because it did not acknowledge or engage with the opinions of M.D.’s treating providers, failed to initially address his substance use disorder, and ignored evidence in the medical record that was unfavorable. Blue Cross responded that M.D. could have been treated in a less restrictive setting and interventions other than the residential treatment program could have addressed his ongoing symptoms. In addition, it maintained that the record shows it credited the opinions of M.D.’s treating providers when making its determinations and that it considered and analyzed all of M.D.’s relevant diagnoses, including his substance use issues. Finally, Blue Cross argued that the setbacks chronicled in M.D.’s medical records did not warrant continued 24-7 residential treatment. The court agreed with Blue Cross on all these points and stated that it could not conclude that the denial was arbitrary and capricious. The court stressed that it was not in the position to substitute its own judgment for that of the administrators so long as it was supported by substantial evidence. Though the court voiced sympathy for the family, it ultimately concluded “that the record is devoid of procedural anomalies that suggest [Blue Cross] acted arbitrarily and capriciously.” It therefore affirmed Blue Cross’s denial and entered judgment in defendant’s favor on the claim for benefits. The court then turned to the Parity Act claim. Plaintiffs alleged that the plan imposed stricter treatment limitations for mental health and substance use disorder benefits than it imposed on medical skilled nursing facility and inpatient hospice benefits. The court did not agree. Looking at the requirements for each of these types of care, the court concluded that although they are not identical each essentially requires that treatment not be feasible at any less intensive level of care and that any differences in the standards were neither disparate nor incomparable. “When read in context, the guidelines for residential treatment are comparable to those for [skilled nursing facilities] and inpatient hospice care.” The court therefore declined to find a Parity Act violation and thus entered judgment in favor of Blue Cross on the second cause of action as well. Accordingly, the family’s legal challenge to their plan’s adverse benefit decision was ultimately unsuccessful and Blue Cross’s motion for summary judgment was granted, while the plaintiffs’ cross-motion was denied.

Tenth Circuit

Christina M. v. United Healthcare, No. 1:22-cv-00136, 2024 WL 4534687 (D. Utah Oct. 21, 2024) (Judge David Barlow). Plaintiff C.M. was a minor in February 2019 when he was discharged from one residential treatment center, Polaris, and admitted to another, Elevations. By this point, C.M. sadly already had a long history of mental illness, dating back to 2013 when he first reported hallucinations. Between 2015 and 2017, C.M. was admitted for inpatient treatment on five separate occasions, including a hospitalization after a suicide attempt. Eventually, C.M. revealed to his therapist and his mother, plaintiff Christina M., that he had been sexually abused, and that he continued to feel suicidal. This led directly to his treatment at Polaris from December 31, 2018, to February 27, 2019. The family’s healthcare plan, administered by defendant United Healthcare, covered this two-month period of treatment. This action stems from United’s denial of C.M.’s continued residential care at Elevations, where he remained from the end of February until July 19, 2019. United denied this period of treatment, citing their internal level of care guidelines, after concluding that C.M. had stabilized at Polaris and that he could have been safely treated in a partial hospitalization program. The M. family originally brought this action alleging claims for benefits under Section 502(a)(1)(B) of ERISA, as well as for violation of the Mental Health Parity and Addiction Equity Act. However, on December 20, 2023, the parties stipulated to the dismissal of plaintiffs’ Parity Act claim. They then concurrently filed competing motions for summary judgment, agreeing the court should apply the de novo standard of review to the denial of benefits decision. The court began its decision by considering plaintiffs’ claim that the level of care guidelines should not have been applied because they are not expressly incorporated in the terms of the healthcare plan. The court disagreed and concluded that the use of the guidelines did not violate ERISA because they were referenced in the plan’s definition of “medically necessary,” and were accessible online or through a phone call. This accessibility was significant to the court, which viewed the guidelines as “sufficiently integrated into the Plan so United could rely on them when making benefits decisions.” The court would rely on them too in its own fresh consideration of the claim. Like United, the court considered whether treatment at the residential facility was essential for C.M.’s safety, and it agreed with United that it was not. While the court stressed that there is no dispute C.M. required further medical care following his discharge from Polaris, it nevertheless viewed C.M.’s suicidal ideation as no longer acute or life-threatening. “Elevations records consistently show C.M. was not considering suicide, self-harm, or harm to others.” The court had a weaker retort regarding the auditory and visual hallucinations C.M. experienced during his time at Elevations. Though the court did not dispute that C.M. had these hallucinations, it brushed them aside by pointing to psychiatric notes which categorized them as not distressing, as being his own thoughts, and as not suggesting self-harm or harm to others. Because of this, the court concluded that the hallucinations did not require “special precautions or steps…to address them,” and thus determined they were insufficient to show that 24-hour residential care was medically necessary. Further, the court disagreed with plaintiffs that C.M.’s traumatic history established the need for round-the-clock residential care. “On the days when C.M. struggled with [his] symptoms, he was still recorded as being in a good mood and doing well in the program.” Despite C.M.’s continued struggles, the court concluded that the preponderance of the evidence actually cut against the necessity of residential 24-hour care “to address these chronic issues,” and that “the greater weight of the record evidence suggest [residential] level care at Elevations was not medically necessary for C.M.” Finally, the court gave limited weight to letters from C.M.’s treating providers stating that he required long-term residential care to avoid relapsing into destructive behaviors and thought patterns because the court viewed this information as outdated and pre-dating admission to Elevations. “Both letters are evidence that C.M. needed additional treatment, but they do not persuasively explain why treatment could only safely and properly be provided in a residential 24-hour care setting, as opposed to a partial hospitalization program.” Consequently, none of the evidence provided by the family convinced the court that the denials were incorrect and the care at Elevations was medically necessary. The court therefore affirmed United’s decision and entered summary judgment in its favor, while denying plaintiffs’ motion for summary judgment.

Pension Benefit Claims

Third Circuit

The Procter & Gamble U.S. Bus. Servs. Co. v. Estate of Rolison, No. 3:17-CV-00762, 2024 WL 4554783 (M.D. Pa. Oct. 23, 2024) (Judge Karoline Mehalchick). Procter & Gamble filed this ERISA action as the administrator of the Procter & Gamble Profit-Sharing Trust and Employee Stock Ownership Plan and the Procter & Gamble Savings Plan to determine who is entitled to decedent Jeffery Rolison’s investment plan funds. On April 29, 2024 the court entered summary judgment in favor of the named beneficiary, Margaret Losinger, as well as in favor of Procter & Gamble on the Rolison Estate’s breach of fiduciary duty cross-claim asserted against it. (Your ERISA Watch summarized the decision in our May 8, 2024 edition.) The Estate of Rolison moved for reconsideration, but its motion was denied in this decision. The court held fast to its previous conclusions and rejected what it categorized as the Estate’s improper attempt “to use the instant motions for reconsideration to relitigate its claims seemingly without regard to the standard it is subjected to.” The court noted that the Estate did not point to any intervening change in controlling law or to the existence of any overlooked or new evidence. Instead, the Estate exerted energy arguing that the court’s decision in April was “patently erroneous in multiple respects.” To begin, the Estate contended that the court erroneously applied Third Circuit precedent with regard to the “plan document rule.” The court rejected this. It explained that the Third Circuit precedent indicated merely permits lawsuits against beneficiaries after the benefits have been paid, but it does not necessitate the named beneficiary lose these lawsuits or stand for the principle “that the plan documents are no longer relevant evidence that can be reviewed when determining who is to recover plan benefits.” The court elaborated that the beneficiary designation remains a relevant and central factor when ruling on summary judgment, and flatly rejected the Estate’s contention that the designation “had, as a matter of law, no force, application, or relevance to litigation of the Estate’s cross-claim.” The court further disagreed with the Estate’s basic position that the plan designation had to be disturbed because it was originally made long ago and designated a person the decedent ceased having a relationship with. “The Court disagrees that its decision ‘endorses the proposition that a long past girlfriend should have her ex-boyfriend’s fortune over his family based on the random and stale persistence of an enrolment card when she had no relationship with the boyfriend and their lives were led apart with…other people meaningful to them.’” The court reiterated its earlier holding that the evidence establishes that Mr. Rolison “was informed of his beneficiary designation and nonetheless failed to change it.” The court continued, stating that the record supports that Mr. Rolison “was affirmatively and consistently notified for 13 years that his online account lacked the designation of a beneficiary and that, without an online beneficiary, his paper beneficiary designation [naming Ms. Losinger] remained valid.” The court found the remainder of the Estate’s justifications for amendment likewise without merit. Accordingly, the court declined the invitation to alter its earlier holdings and thus denied the Estate’s motion for reconsideration. 

Ninth Circuit

Bemiss v. Alcazar, No. CV-23-01481-PHX-ROS, 2024 WL 4581439 (D. Ariz. Oct. 25, 2024) (Judge Roslyn O. Silver). Plaintiff John Bemiss filed this ERISA suit against his top hat plan, the Russo and Steele Phantom Equity Incentive Plan, and its administrator, Andrew Alcazar, seeking equitable, injunctive, and monetary relief. Defendants moved for summary judgment on all five of Mr. Bemiss’ claims. In this decision their motion was granted with respect to four of the five causes of action, excluding Mr. Bemiss’ claim under Section 502(a)(1)(B) seeking a greater benefit payout from the Plan. When it came to the benefit claim, the court concluded that despite the dispute regarding the parties’ two reasonable interpretations of certain ambiguous plan terms, including “growth over the Baseline then in effect” and “net commissions income,” the court nevertheless found that Mr. Alcazar’s interpretation did not constitute an abuse of discretion. Nevertheless, the court flagged a genuine dispute of material fact remaining, namely the issue of how much money Mr. Bemiss is owed. The court stressed that it is the moving party’s burden to show that Mr. Bemiss received the money and that it failed to provide admissible evidence showing that he did so. The court therefore found a genuine dispute of material fact as to whether the funds were disbursed to Mr. Bemiss and stated that the “ultimate value of the benefit payout Bemiss is entitled to turns on the resolution of this triable factual dispute.” As such, the court denied the motion for summary judgment on this one count. Nevertheless, the court entered summary judgment in favor of defendants on Mr. Bemiss’ four remaining causes of action: (1) denial of a full and fair review under Section 503, (2) injunction and specific performance under Section 502(a)(3), (3) statutory penalties under Section 502(c)(1), and (4) interference and retaliation under Section 510. The court concluded that defendants complied with Section 503’s claim procedure requirements, that they did not violate the terms of the plan, that they provided Mr. Bemiss with financial statements supporting the determination, and that the former employer-employee relationship was not affected because the termination occurred “before the alleged retaliatory measure was taken.” Pursuant to these findings, the court granted defendants’ motion for summary judgment on each of these claims. Accordingly, only the narrow issue of payment remains to be decided at trial, and in all other respects defendants’ motion for summary judgment was granted and counts two through five were dismissed with prejudice.

Paieri v. Western Conference of Teamsters Pension Tr., No. 2:23-cv-00922-LK, 2024 WL 4554616 (W.D. Wash. Oct. 23, 2024) (Judge Lauren King). On average, women’s lives are typically about six years longer than men’s. This means that wives often outlive their husbands. ERISA accounts for this by setting statutory requirements for qualified joint and survivor annuity and qualified optional joint and survivor annuity forms of benefits. Among these requirements is a mandate that plans disclose to participants and their spouses the relative values of various forms of benefits, as well as an obligation that participants’ spouses agree in writing to their spouses’ benefit selection, including, perhaps most importantly, any decision to waive election of a qualified joint and survivor annuity benefit. ERISA further requires that joint and survivor annuity benefits be actuarially equivalent to single life annuity options. In this putative class action plaintiff Michael Paieri, a Teamsters Union retiree, alleges that the Board of Directors of the Western Conference of Teamsters Pension Trust, as administrator of the pension plan, violated these statutory requirements. Rather than opt for joint and survivor annuity options, Mr. Paieri chose a Life Only Pension with a Benefit Adjustment Option designating age 62 as his adjustment date, as well as a separate life insurance policy to cover his wife in the event she survives him. But Mr. Paieri feels that the plan did not comply with ERISA’s statutory requirements and that it failed to provide him with relevant information including accurate calculations and representations of the relative benefit amounts and values under each of the various pension benefit options. If it had, he alleges that he might have made a different choice, and that by failing to do so, “the Plan prevented participants like him ‘from electing the more valuable form of benefit.’” Additionally, the complaint alleges that the plan was unlawfully amended to suspend pension benefits for retirees so that benefits were suspended not only for “covered employment,” but also for post-retirement employment “in the same industry, same trade or craft and same geographic area covered by the Plan.” This change also retroactively suspended benefits for similar “non-covered” employment. Mr. Paieri was directly affected by these changes and he had part of his accrued retirement benefits suspended when he worked a couple of non-covered post-retirement jobs. Finally, Mr. Paieri claims the plan failed to provide him plan documents upon written request. In his putative class action against the Plan and Board, Mr. Paieri asserts five causes of action: (1) a claim under Section 502(a)(3) for unreasonable actuarial equivalence factors, failure to disclosure actuarial assumptions, and failing to provide relative value disclosures for the benefit options; (2) a claim under Section 502(a)(1)(B) for violations of Section 1054 in connection with the plan amendments; (3) similarly, a claim under Sections 1053 and 1054 related to the amendments and the suspension of benefit increase prior to the benefit adjustment dates and for failure to provide retroactive benefits with interest to account for the suspensions; (4) breach of the fiduciary duty of prudence; and (5) an individual cause of action for failure to provide the documents Mr. Paieri requested in writing. Defendants moved to dismiss the complaint and alternatively to bifurcate liability and damages. In this decision the court denied the motion to dismiss entirely, but granted the motion to bifurcate. The court rejected defendants’ arguments with regard to Constitutional standing, untimeliness, and plausibility. First, the court found “that Paieri has alleged an injury in fact for Count I as well as the corresponding portions of Count IV. Beyond alleging that he ‘may have selected’ a different pension plan in 2019, Paieri claims that ‘[t]he Plan’s failure to provide actuarially equivalent spousal benefits constitutes a forfeiture of non-forfeitable benefits.’” The court held that “it is enough to plead that harm occurred.” Next, the court concluded that the claims are not time-barred. The court stated that under Ninth Circuit precedent claims seeking to recover benefits under ERISA plans are most analogous to breach of contract claims. It therefore adopted Washington’s six-year limitation period, and held that Mr. Paieri’s action is timely. Similarly, for the breach of fiduciary duty claims, the court could not conclusively say that Mr. Paieri had actual knowledge of the facts underlying his claim more than three years before he filed his lawsuit. Therefore, at least on the pleadings, the court was unwilling to say that any of Mr. Paieri’s claims are definitively time-barred. Finally, the court was satisfied that the complaint satisfied notice pleading and therefore denied the motion to dismiss pursuant to Rule 12(b)(6). Within this section, the court agreed with the majority of district courts “that the plain meaning of ‘actuarial equivalence’ requires reasonable actuarial assumptions.” Based on the foregoing, the court denied the motion to dismiss. Nevertheless, the court agreed with defendants that bifurcating proceedings, including discovery, promotes judicial economy and convenience. The court accordingly granted the motion to bifurcate the issues of liability and damages.

Plan Status

Seventh Circuit

Hansen v. Lab. Corp. of Am., No. 24-CV-807, 2024 WL 4564357 (E.D. Wis. Oct. 24, 2024) (Magistrate Judge Nancy Joseph). Plaintiff Katie Hansen sued her employer, Laboratory Corporation of America (“Labcorp”), in Wisconsin state court alleging Labcorp was violating state wage laws by improperly denying her claim for short-term disability (“STD”) benefits. Labcorp removed the action to federal court on the ground that the STD plan is subject to ERISA, making the state wage law claim preempted. Ms. Hansen maintains that the STD plan is an exempted “payroll practice” and moved to remand her action back to state court. LabCorp, meanwhile, filed a motion to dismiss the action. In this decision the court concluded that it does not have subject matter jurisdiction over the case and granted the motion to remand. The decision had two sections, the first of which was devoted to plan status. In this half of the decision the court focused on a Department of Labor (“DOL”) regulation that exempts certain payroll practices from ERISA even if the plan would otherwise meet the definition of an ERISA plan. Under this exemption plans fall outside of ERISA’s purview if they are “[p]ayment of an employee’s normal compensation, out of the employer’s general assets, on account of periods of time during which the employee is physically or mentally unable to perform his or her duties, or otherwise absent for medical reasons (such as pregnancy, a physical examination or psychiatric treatment).” Ms. Hansen asserts that the STD benefits fall precisely under the regulation’s definition of an exempted payroll practice because they are paid through Labcorp’s regular payroll according to the normal payroll cycle, normal payroll deductions continue, Labcorp pays all of the costs and fully self-funds the STD plan, and the benefits are provided when an employee is unable to perform their normal work duties solely because of illness, injury, or pregnancy. The court agreed, and rejected Labcorp’s attempts to liken its STD plan with plans in other cases where the First Circuit has found the payroll practice exemption inapplicable. The court further declined to read First Circuit caselaw as holding that plans cannot be “unbundled” that “so long as one benefit in an overall benefit plan is covered by ERISA, it follows that the exempt practices listed in § 2510.3-1 are no longer exempt.” For these reasons, the court concluded that Labcorp failed to meet its burden of showing that the STD policy is governed by ERISA and that the court has subject matter jurisdiction. It was perhaps the second half of the decision that will be even more interesting to our readers. In this portion of the decision the court addressed the viability of the DOL’s payroll practice exemption after the Supreme Court’s holding in Loper Bright which overturned the nearly 40-year-old Chevron deference doctrine. Labcorp boldly argued that under the recent Loper Bright decision the DOL’s payroll practices regulation “should be disregarded because the Department of Labor lacked statutory authority to promulgate it and the regulation conflicts with the plain language of ERISA.” The court was having none of this. Contrary to Labcorp’s position, the court held that Loper Bright is not so broad and “does not stand for the proposition that all regulations promulgated by federal agencies must be disregarded.” The court found that the DOL was not only given the authority to promulgate the payroll practice exception, but speculated that the Supreme Court would not disturb its own previous position on the payroll practice exemption laid out in Massachusetts v. Morash, 490 U.S. 107 (1989) wherein the court reasoned that there is a need to draw lines distinguishing between wages and benefit plans, and noted that when “employees are paid as part of their regular compensation directly by the employer and under which no separate fund is established,” the employees aren’t threatened by the same risks as employees who are beneficiaries of a trust. Because the Supreme Court “already considered and upheld the payroll practices exception in Morash,” the court found it highly unlikely that the Supreme Court would depart from its earlier stated position, particularly as Loper Bright itself makes clear that it doesn’t “call into question prior cases that relied on the Chevron framework,” which “are still subject to statutory stare decisis despite our change in interpretive methodology.” Thus, Labcorp’s attempt to apply Loper Bright did not succeed, and the court found that the DOL regulation was lawfully promulgated. As a result, the court concluded that remand is proper and so granted Ms. Hansen’s motion, and denied as moot Labcorp’s motion to dismiss.

Pleading Issues & Procedure

Third Circuit

Murphy v. HUB Parking Tech. USA, Inc., No. 24cv0784, 2024 WL 4544727 (W.D. Pa. Oct. 22, 2024) (Judge Arthur J. Schwab). When plaintiff Lynn-Marie Dawn Murphy divorced third-party defendant Brandon Murphy the state court overseeing their divorce proceedings issued a Domestic Relations Order and Marriage Settlement Agreement which required Mr. Murphy to distribute a $121,000 lump-sum payment to Ms. Murphy from the proceeds of his HUB Parking Technology USA, Inc. Retirement Savings Plan account. This didn’t happen. Instead, while HUB Parking was evaluating the Domestic Relations Order to determine whether it was a Qualified Domestic Relations Order (“QDRO”), Mr. Murphy withdrew the entire amount of his 401(k) account. Ms. Murphy alleges in this ERISA action that HUB Parking violated its fiduciary duties as plan administrator by allowing this to happen. Mr. Murphy was ordered by the state court to pay plaintiff the $121,000 he wrongfully withdrew from his 401(k) plan and was held in violation of the terms of the Marriage Settlement Agreement. He has begun paying her in installments. HUB Parking responded to plaintiff’s complaint and also filed its own third-party complaint against Mr. Murphy alleging a claim of unjust enrichment pursuant to ERISA Section 502(a)(3). Mr. Murphy moved to dismiss the third-party complaint against him, arguing that HUB Parking’s claim for unjust enrichment is not based upon ERISA, among other things. The court denied Mr. Murphy’s motion to dismiss, although it identified a plethora of potential issues with HUB Parking’s (a)(3) claim. For one, the court recognized a significant Circuit split regarding the nature of restitution and the available landscape of recoveries under Section 502(a)(3). The Sixth and Ninth Circuits read the Supreme Court’s decision in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), “to establish a broad prohibition under § 1132 (a)(3)(B) on claims for restitution derived from the provisions of ERISA plans.” That means that in these two Circuits plaintiffs cannot seek relief under Section 502(a)(3) unless the claim originates in the plan’s contract and seeks monetary damages. On the other side, the Fourth, Fifth, Seventh, and Tenth Circuits construe Knudson narrowly. These Circuits have adopted a test asking if the plan is seeking to recover specifically identifiable funds that belong to it, and are within the possession and control of the defendant. Notably, and of course of relevance to the present matter, the Third Circuit has not picked a team. Regardless, the court noted that under either approach, the claim for equitable restitution must seek specifically identifiable property within the control of the defendant, although a disagreement exists on this issue as well among courts as to what constitutes “identifiable funds.” HUB Parking hasn’t yet established whether Mr. Murphy possesses the money in question. But to the court, all of this is premature. Accepting the well pleaded factual allegations of HUB Parking’s third-party complaint, the court could not say that its claim for equitable relief is implausible. Therefore, under lenient Rule 8 pleading standards, the court declined to dismiss the claim and instead felt that discovery is necessary to develop the record. After discovery is complete, the court stated that Mr. Murphy, or any other party, is welcome to file a Rule 56 motion for summary judgment. For now, HUB’s Section 502(a)(3) claim against Mr. Murphy will proceed.

Ninth Circuit

Garcia v. Bradshaw, No. 24-cv-03068-JSC, 2024 WL 4528718 (N.D. Cal. Oct. 18, 2024) (Judge Jacqueline Scott Corley). Plaintiff Juan Garcia is an employee of AFI, which until October of 2023 was bound by a collective bargaining agreement with Mr. Garcia’s union and was a contributing employer to the defendant trust and trustees in this ERISA action. The collective bargaining agreement then expired. Mr. Garcia alleges that although the collective bargaining agreement expired, his employer’s obligation to make payments continues after expiration until a lawful impasse occurs. In his suit, Mr. Garcia alleges that defendants violated ERISA by failing to accept trust fund contributions from AFI. Defendants moved to dismiss the complaint. They argued that Mr. Garcia lacks Article III standing to make claims regarding trust funds other than the health care plan because the complaint is silent about how their refusal to accept contributions for these other funds has injured him. In addition, defendants facially attack the healthcare plan injury. They maintain that any alleged injury is not fairly traceable to them because the terms of the collective bargaining agreement show that his eligibility for health care benefits hinges on his employer making contributions to the plan. The court issued this order requiring Mr. Garcia to show cause and respond to two key threshold issues of standing and jurisdiction. The court ordered Mr. Garcia to respond to this order (1) to satisfy his burden to demonstrate he has Article III standing to bring claims regarding the non-healthcare funds, and (2) address how the court has jurisdiction to determine whether a lawful impasse has occurred and whether the union is unlawfully refusing to accept employee contributions while the very same issues are currently pending before the National Labor Relations Board. Finally, the court clarified that in lieu of filing a response, Mr. Garcia may alternatively file an amended complaint, “provided Plaintiff has a good faith basis for alleging this Court has jurisdiction to decide the claims.”

Provider Claims

Eleventh Circuit

Healthcare Ally Mgmt. of Cal. v. UnitedHealthcare Servs., No. 23-cv-22455-ALTMAN/Reid, 2024 WL 4554060 (S.D. Fla. Oct. 22, 2024) (Judge Roy K. Altman). From May of 2018 through December of 2019, three related hospitals in southern Florida provided surgical procedures to twelve different patients insured under ERISA-governed healthcare plans administered by UnitedHealthcare Services, Inc. The hospitals allege that for each patient they contacted the relevant plan, United approved the surgical procedure, promising to pay usual and customary rates, the procedures took place, and then United issued payments at the much lower Medicare reimbursement rates. The story basically repeats itself a dozen times, with little or no variation. Administrative procedures to secure additional payments were unsuccessful, which prompted this action by Healthcare Ally Management of California, LLC, to whom the hospitals assigned their rights. HAMOC accused United of failing to make proper payments to the providers for the treatments. Plaintiff asserts three causes of action: (1) negligent misrepresentation, (2) promissory estoppel, and (3) recovery of benefits under ERISA. United moved to dismiss the complaint. It advanced three principal arguments for dismissal: (1) plaintiff is an “unregistered debt collector” which cannot maintain its action as a matter of state law, (2) the complaint fails to state claims, and (3) the state law claims are defensively preempted by ERISA. The court addressed each of these arguments. First, the court held that plaintiff was not required to register with the State of Florida because the licensing requirements United pointed to do not apply to alleged debts between an insurance company and a medical provider. Second, the court ruled that the complaint adequately states its two state law causes of action. United argued that promises of usual and customary rates are not definite enough to support claims of promissory estoppel and negligent misrepresentation. The court disagreed. While the court stated that usual and customary rates “doesn’t refer to a specific price,” it nevertheless rejected the idea that this variability means the usual and customary rate is some unknowable figure, particularly as it “is a commonly understood term in the health insurance field” used by United itself. At any rate, the court was satisfied that the complaint alleges that the providers were plausibly paid less than the amount they are owed and stated that it would not dismiss the case at this early stage of litigation simply because plaintiff has failed to compute “its damages with exactitude.” In easily the funniest passage of the decision, the court refused to adopt United’s “bizarre” proposition that the providers were under an obligation to disregard any promises it made “simply because the insurer had underpaid the Providers on some other debts.” To the court, United seemed to be arguing “that the Providers shouldn’t have trusted it to tell the truth in any given case because [it] had already proven itself to be untrustworthy in other cases.” The court declined to “let a defendant off the hook on a misrepresentation claim on the argument – which it will be free to make to a jury if it can do so with a straight face – that the Providers shouldn’t have been surprised by its duplicity because it always (or often) behaves duplicitously.” Thus, the court rejected United’s 12(b)(6) arguments to dismiss the two state law causes of action. However, the court dismissed the ERISA claim, without prejudice, because it agreed with United that the claim is currently too indefinite and fails to comply with the Eleventh Circuit’s standards of identifying specific plan terms. The court then analyzed defensive preemption. It ultimately concluded that the two state law causes of action are not preempted by ERISA because the alleged obligation to pay “arises not from the terms of an ERISA plan but from oral agreements between” the parties. Thus, the court ruled that the terms of the ERISA plans are “totally irrelevant to Counts 1 and 2.” Finally, the court briefly noted that arguments regarding the ERISA plan’s anti-assignment provisions are premature at this juncture. Accordingly, United’s motion to dismiss was granted as to the ERISA claim, and otherwise denied.