Chavez v. Plan Benefit Servs., Inc., No. 22-50368, __ F.4th __, 2024 WL 3409147 (5th Cir. July 15, 2024) (Before Circuit Judges Wiener, Stewart, and Engelhardt)

This published opinion is the third by the Fifth Circuit in this class action challenging the imposition of excessive fees in the administration of ERISA-governed retirement and welfare benefit plans, with the potential of more to come.

The plaintiffs are Heriberto Chavez, Evangelina Escarcega, and Jorge Moreno, who were employees of the Training, Rehabilitation & Development Institute, Inc. (“TRDI”). TRDI contracted with defendants Plan Benefit Services, Fringe Insurance Benefits, and Fringe Benefit Group (collectively “FBG”) to set up various benefits for TRDI employees. TRDI distributed the benefits through FBG via two trusts, the Contractors and Employee Retirement Trust (“CERT”), which covers retirement plans, and the Contractors Plan Trust (“CPT”), which covers health and welfare benefits.

TRDI’s contract with FBG gave FBG significant control over how the trusts were operated and how benefits were paid. FBG was allowed to determine the fees deducted from CERT and direct “banks and other entities holding Trust funds to pay those fees, including to FBG itself.” Meanwhile, CPT authorized FBG to “calculate and deduct its own fees from employer contributions before remitting premium payments to the carriers.”

Plaintiffs contended that FBG abused this power by collecting excessive fees in violation of ERISA, such as charging an excessive base fee and charging different rates for identical services on top of that. They alleged examples in which FBG charged as much as 10-17%, depending on the benefit, which they contended was unreasonable.

FBG moved to dismiss, but its motion was denied. The district court also granted plaintiffs’ motion for class certification. In doing so, the court “encountered a question of first impression: whether Plaintiffs had standing to sue FBG on behalf of unnamed class members from different contribution plans.” The court ultimately concluded that plaintiffs had standing and certified a class.

FBG appealed and the Fifth Circuit reversed in a 2020 decision. It ruled that the district court did not engage in a sufficiently “rigorous analysis” necessary for certifying a class action and remanded. On remand, the court conducted a more thorough analysis and again granted plaintiffs’ class certification motion.

FBG again appealed. In August of last year, the Fifth Circuit affirmed this new decision in its entirety. (Your ERISA Watch covered this ruling as the case of the week in our August 16, 2023 edition.)

In that ruling, the Fifth Circuit tackled a thorny issue that often arises in class actions. As we wrote last August:

If a class representative wants to litigate over harms that other class members suffered but were not identical to the ones the representative suffered, when should courts address the “disjuncture between the harm that the plaintiff suffered and the relief that she seeks”?

Some courts have simply ruled that plaintiffs have standing as to their own individual claims and then addressed the disjuncture during the class certification stage. Other courts have addressed the disjuncture at the pleading stage, deciding whether the plaintiffs have standing to pursue the claims of others. The Fifth Circuit called the first approach the “class certification approach” and the second the “standing approach.”

The Fifth Circuit punted on this issue, ultimately ruling that plaintiffs could proceed under either approach. It affirmed the class certification order and remanded.

But wait! FBG, backed by an amicus brief from the Chamber of Commerce, filed a motion for rehearing, which the Fifth Circuit granted. It withdrew the August 2023 decision and last week issued a new decision replacing it.

Would the Fifth Circuit bravely step forward and take this opportunity to decide which framework – the class certification approach or the standing approach – is correct? Sadly, the answer was no. On this issue the court’s new decision was identical to its old one, concluding that plaintiffs had standing under either approach.

However, the court whistled a different tune on the issue of class certification. It agreed with its previous ruling that plaintiffs satisfied Federal Rules of Civil Procedure 23(a) and 23(b)(3). Where it differed was on Rule 23(b)(1).

Rule 23(b)(1) allows for a class action when separate actions would create a risk of disposing of or impairing the claims, interests, or rights of absent class members. The essence of FBG’s argument on this point was that the “district court’s analysis completely fails to account for the central fact that this proposed class involves vastly different plans and fees.” FBG also argued that “the district court incorrectly assumed that an accounting for Plaintiffs’ claim would be dispositive in any way for any other plan members.”

Last August the Fifth Circuit dismissed these concerns, concluding that FBG’s pricing scheme was either “uniform or amenable to a pricing grid,” and that plaintiffs were seeking not only monetary relief, but also equitable remedies, which “undoubtedly involves the entire class – or any other members of the CERT and CPT trusts[.]” Thus, Rule 23(b)(1) was satisfied.

The Fifth Circuit changed its mind in its new ruling. The court concluded that “mandatory class status under Rule 23(b)(1) is inappropriate because this is primarily an action for damages and it is not evident that individual adjudications would substantially impair the interests of members not parties to the individual adjudications.”

The appellate court noted that even though plaintiffs sought equitable relief, that relief was in the form of disgorgement of “ill-gotten profits,” which was monetary in nature. Thus, “[t]he inclusion of claims for injunctive and declaratory relief does not change the nature of this action.” The “class claims are primarily for damages” and therefore Rule 23(b)(3) “is the appropriate vehicle for such class actions.”

Next, in an addition from last year’s ruling, the Fifth Circuit addressed the district court’s “cursory” Rule 23(c) analysis “to provide guidance on remand” because “in its certification order, the district court did not indicate that it had seriously considered the administration of the trial.”

Specifically, the appellate court ruled that the district court “failed to sufficiently address concerns regarding the variability of individualized damages in the suit.” The district court “abused its discretion” in “failing to adequately analyze and determine whether liability and damages should be bifurcated in certifying the class.”

The court further instructed the trial court to consider whether some of the distinctions alleged by FBG “could be handled via certification of specific issues or subclasses.” As for what procedures or mechanisms the district court could employ, the Fifth Circuit was agnostic: “We express no view on the district court’s ultimate decision whether to divide this large, complex litigation into smaller, more manageable pieces in light of today’s opinion, nor do we opine on the ultimate merits of the substantive claims.”

In short, the Fifth Circuit’s new decision backtracked slightly from its ruling last year, but in the end it arrived at a similar place. The plaintiffs’ class action remains certified, although narrowed in basis to Rule 23(b)(3) only. Furthermore, on remand the district court will have to dot its I’s and cross its T’s on the procedural details in order to avoid a third trip back to the Fifth Circuit.

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

Class Actions

First Circuit

Turner v. Liberty Mut. Ret. Benefit Plan, No. 20-11530-FDS, 2024 WL 3416070 (D. Mass. Jul. 15, 2024) (Judge F. Dennis Saylor IV). In 2008, Liberty Mutual Insurance Company acquired Safeco Insurance Company. Plaintiff Thomas Turner was an employee at Safeco. He first began working for the company in 1980 and continued working for the company after its acquisition by Liberty Mutual. Liberty Mutual promised transitioning employees that they would begin participating in its benefit programs and that the years they worked at Safeco would be counted towards their benefits. At issue in this putative class action is Liberty Mutual’s calculation of cost-share obligations for post-retirement medical benefits. Mr. Turner alleges that after the Safeco acquisition, he was advised repeatedly that his post-retirement healthcare cost-sharing credits would be calculated based on both his pre-merger years of employment at Safeco and his later years working for Liberty Mutual. Following two summary judgment decisions in 2022 and 2023, this issue over misrepresentations is the one remaining cause of action in Mr. Turner’s lawsuit. In this remaining claim, Mr. Turner seeks equitable relief under Section 502(a)(3) and asks the court “to reform the plan in accordance with representations Defendants made to Plaintiff and the Class and to provide complete credit for years they were employed by Safeco for purposes of benefits under the [Liberty Mutual Retirement Benefit Plan.]” He now seeks to certify a class of similarly situated employees under Rule 23. However, his motion to certify was denied without prejudice in this order. The problem for Mr. Turner was his class definition. Mr. Turner defined his class as: “Former grandfathered employees of Safeco corporation and subsidiaries transitioning to Liberty Mutual on January 1, 2009 who were not or will not be given both: (A) credit for purposes of eligibility and cost sharing for their grandfathered age and service points as of 12/31/2004 (their ‘Safeco Grandfathered Credit’) and (B) credited service for employment with Liberty Mutual (their ‘Liberty Mutual Credit.’).” To the court, this class definition is based in part on a claim that is not part of Mr. Turner’s complaint –that Safeco employees were denied benefits they earned under the Safeco plan prior to the Liberty Mutual acquisition, in addition to the benefits they earned under the Liberty Mutual plan. The Liberty Mutual defendants took issue with this too, and they characterized it as a workaround “that subtly, but critically, broadens the nature of the remaining claim at issue.” The court and defendants agreed that this “combined benefits” aspect of the proposed definition, where Mr. Turner appears to assert that he was denied benefits earned under both the Safeco plan and the Liberty Mutual plan, is not plaintiff’s heretofore theory of his case. Instead, Mr. Turner’s theory has always been that he was denied benefits he was owed under the Liberty Mutual plan based on his years of employment at both Safeco and Liberty Mutual. The court concluded therefore that certification of this proposed class encompassing the combined-benefit claim is impermissible. “Here, because the pleaded claim is founded on a broader range of allegedly unlawful conduct than that raised in plaintiff’s motion, the complaint did not provide adequate notice of the legal theory animating the proposed class definition.” Accordingly, the court denied the motion to certify this class, but stated that whether a class with a different definition more narrowly focused on Mr. Turner’s actual theory around the Liberty Mutual plan could be certified remained an open question and therefore denied the motion without prejudice.

Discovery

First Circuit

Germana v. Hartford Life & Accident Ins. Co., No. 3:23-cv-30065-MGM, 2024 WL 3416026 (D. Mass. Jul. 15, 2024) (Magistrate Judge Katherine A. Robertson). Plaintiff Scott Germana brings this action against Hartford Life and Accident Insurance Company seeking to recover long-term disability benefits under ERISA. Presently before the court was a motion for discovery filed by Mr. Germana requesting a one-hour Rule 30(b)(6) deposition of Hartford, along with certain written discovery mainly regarding Hartford’s policy of not considering documents submitted after the date when it determines the record is closed, as well as its practice of relying on medical opinions of physicians not licensed to practice medicine in the state of Massachusetts. Mr. Germana maintains that the discovery he seeks will show procedural irregularities and will speak to Hartford’s bias. He argued that he is entitled to this limited discovery in order to bolster his arguments in favor of reversing the termination of benefits. The court did not agree, and in this decision denied Mr. Germana’s discovery motion. The court was not persuaded that Mr. Germana had presented convincing evidence of implicit bias or anything other than bare allegations of a structural conflict of interest to warrant deviating from the presumption against discovery in ERISA benefit denial cases such as this one. It broadly rejected Mr. Germana’s argument that Hartford’s policy of refusing to credit materials once it has closed the claims record prevents a full and fair review under ERISA. Mr. Germana’s assertions, the court stated, were in direct conflict with First Circuit holdings where “the final administrative decision acts as a temporal cut off point.” As a result, the court concluded that evidence arising beyond the final administrative decision is inadmissible, and stated that it would not add these documents into the administrative record. In addition, the court stressed it could find no case law supporting Mr. Germana’s proposition that an insurance company is required to have doctors licensed in a claimant’s state review the claimant’s medical records. Accordingly, the court declined to open up discovery on this basis. The rest of Mr. Germana’s remaining rationales for discovery were also rejected by the court, including his arguments that defendant failed to consider the cognitive effects of his disability and that Hartford did not offer a plausible explanation for disregarding the Social Security Administration’s finding of disability. The court summed up its views as follows: “[t]he bald fact that Defendant made an adverse benefits determination is not evidence of bias or unfair claims processing… If it were, almost every plaintiff in an ERISA benefit denial case would be entitled to discovery, and the First Circuit has made clear that discovery is the exception not the rule.” Mr. Germana was therefore not permitted to take the limited discovery he requested or add any documents to the administrative record.

Disability Benefit Claims

Eighth Circuit

Covill v. Unum Life Ins. Co. of Am., No. 23-cv-19-LTS-MAR, 2024 WL 3443916 (N.D. Iowa Jul. 16, 2024) (Magistrate Judge Mark A. Roberts). Plaintiff Kendra Covill stopped working as a dental hygienist in 2019 after the onset of randomly occurring but severe pelvic and gynecological pain. To treat her symptoms Ms. Covill underwent several surgeries in August and September of 2019, including a hysterectomy. Nevertheless, the pain persisted, prompting Ms. Covill to submit a claim for long-term disability benefits under an ERISA-governed policy insured by defendant Unum Life Insurance Company of America. Unum denied Ms. Covill’s claim, concluding that Ms. Covill exaggerated the severity of her pain and that her complaints of ongoing chronic pain were of “unclear etiology.” In this action, Ms. Covill challenges Unum’s denial of benefits. She argued that Unum’s decision was arbitrary and capricious as it was based primarily on a lack of a documented single unifying diagnosis accounting for the pain. Ms. Covill contends that “reliance on her subjective severe pain reports, her exam records documenting severe pain, and the intensive therapy she received confirm the severity of her pain reports,” making Unum’s decision to deny her claim for benefits unreasonable. Further, Ms. Covill maintained that Unum improperly rejected her treating OBGYN’s assessment of her functional limitations, including her doctor’s position that her pain was at times so severe that it is “not safe to work on patients while using sharp instruments in their mouths.” Finally, Ms. Covill asserted that Unum wrongfully discredited her vocational consultant’s report and instead imposed its own definition of “light work” to include frequent sitting, which she contends is inconsistent with both the definitions under the Dictionary of Occupational Titles (“DOT”) and the Enhanced Dictionary of Occupational Titles (“eDOT”). It was this last argument which proved most persuasive to Magistrate Judge Mark Roberts, who issued this report and recommendation taking issue with Unum’s definition of “light work.” The Magistrate recommended that the court remand the matter to Unum for further consideration and development on issues related to this definition, “including whether such designation includes frequent sitting, and to further address why and how the eDOT definition applies to Covill.” The Magistrate’s report noted that Unum did not meaningfully address this subject in its briefing and failed to supply the eDOT’s definition of  “light work” as it pertains to sitting requirements. Without this critical information, the Magistrate believed that the court could not adequately review Unum’s decision. The report also questioned the fact that Unum’s vocational rehabilitation consultant deferred any restrictions and limitations to the reviewing physician, stating, “[a]t best, it is difficult to understand how a vocational consultant can provide an accurate opinion without knowing the claimant’s functional restrictions.” Finally, the Magistrate recognized that Unum has a conflict of interest as it is both decision-maker and insurer. For these reasons, the report stated that remanding to Unum for further development of the record “is appropriate and necessary” and therefore recommended this course of action.

Wessberg v. Unum Life Ins. Co. of Am., No. 22-94 (JRT/DLM), 2024 WL 3444044 (D. Minn. Jul. 15, 2024) (Judge John R. Tunheim). Plaintiff Ann Wessberg became disabled following a diagnosis of bilateral invasive breast cancer in late 2018, at which time she stopped working as an attorney and began cancer treatments including radiation, chemotherapy, and surgeries. In March of 2019 Unum Life Insurance Company of America approved Ms. Wessberg’s claim for long-term disability benefits. Unum continued paying monthly benefits until July 2020, when it terminated benefits, after Ms. Wessberg’s treating oncologist attested that she had improved. In this ERISA action, Ms. Wessberg challenges Unum’s decision, alleging that the insurer improperly terminated benefits and seeking a court order reinstating her long-term disability benefits. In this decision the court issued its ruling under de novo standard of review on the parties’ cross-motions for judgment pursuant to Rule 52. It found that Unum improperly terminated Ms. Wessberg’s benefits and ordered it to pay back benefits, reinstate benefits and resume paying ongoing benefits, and pay Ms. Wessberg reasonable attorneys’ fees, costs, and pre-judgment interest. The decision highlighted several flaws with Unum’s denial of benefits. First, the court expressed that it was an error for Unum to focus overwhelmingly on the physical demands of Ms. Wessberg’s work as an attorney, and not consider the cognitive demands of the job. As evidence of this, the court pointed out that the occupation description Unum provided to Ms. Wessberg’s treating doctors “completely omitted cognitive demands.” Moreover, the court stated that Unum’s failure to consider Ms. Wessberg’s cognitive impairment was not due to Ms. Wessberg failing to submit evidence supporting her assertion of a cognitive disability. “For instance, in March 2019 Wessberg reported to her oncology provider that she was experiencing vertigo/dizziness and fatigue. In May 2019 she reported to her mental health provider that she struggled with concentration and memory, was fatigued and tired, and had decreased stamina.” The court concluded that its own careful review of the entire medical record demonstrated Ms. Wessberg was experiencing disabling cognitive symptoms, including fatigue, dizziness, concentration issues, and fainting, which prevented her from performing the essential duties of her career, and that “Unum, did not present any evidence contradicting Wessberg’s symptoms.” In fact, all of Ms. Wessberg’s treating providers stated they believed she was credible and could not resume full time work. In addition, the court noted that Unum neither required Ms. Wessberg to submit to an independent medical evaluation nor referred her for any cognitive testing, despite the Policy allowing it to do so. Meanwhile, the court reasoned that it would not defer to Unum’s reviewing physicians, as neither of the two doctors “had treated a patient in more than a decade,” other courts have found them not credible, and neither doctor “specializes in oncology or cognitive disabilities.” Finally, the court stated it was improper for Unum to state that Ms. Wessberg failed to corroborate her disabling symptoms with abnormal test results because it rejected her attempts to submit such test results after the date when it terminated benefits. In sum, the court said, “Unum had a duty to engage with Wessberg’s evidence and make an adequate determination of whether Wessberg was disabled; its failure to do so was erroneous.” For these reasons, the court concluded Unum wrongfully terminated Ms. Wessberg’s benefits, reinstated them, awarded her payment of back benefits, interest, and attorneys’ fees, and entered judgment in her favor.

Life Insurance & AD&D Benefit Claims

Fifth Circuit

Edwards v. Guardian Life Ins. of Am., No. 1:22-CV-145-KHJ-MTP, 2024 WL 3404606 (N.D. Miss. Jul. 12, 2024) (Judge Kristi H. Johnson). Plaintiff James Emmett Edwards brought this action against Guardian Life Insurance of America seeking to recover life insurance benefits following the death of his wife. Mrs. Edwards was the owner-operator of a hair salon in Mississippi. In 2007, Guardian issued the salon a group life insurance policy. One of the terms of the policy granted Guardian the right to cancel the plan if “less than two employees are insured.” In 2019, Mrs. Edwards was diagnosed with cancer. By November of 2019, Mrs. Edwards became the only participating employee under the group plan. She nevertheless continued to maintain the plan and pay monthly premiums. Before the policy was eligible for cancellation, the COVID-19 pandemic occurred, at which time Guardian suspended its practice of terminating plans that had dropped to one participant. Its suspension practice ended in October of 2021, at which time Guardian mailed a letter to Mrs. Edwards informing her that the salon’s group life insurance policy was being cancelled effective January 15, 2022 because of low participation. After the policy was cancelled Guardian received no additional premium payments. Then, on May 27, 2022, Mrs. Edwards died from complications of her cancer. Mr. Edwards’ claim for proceeds under the policy was denied by Guardian, prompting this litigation. The only remaining claim in Mr. Edwards’ action is a claim for recovery of plan benefits under ERISA Section 502(a)(1)(B). Guardian moved for summary judgment on the benefits claim. Its motion was granted in this decision. The court concluded that there was no genuine dispute of material fact that Guardian had the authority to cancel the policy and that it did so before Mrs. Edwards died and before Mr. Edwards made a claim under the policy. “Without a plan in existence,” the court stated, “Edwards ‘has no claim for benefits under the plan.’” The court rejected both of Mr. Edwards’ arguments for why he remained entitled to benefits even after Guardian cancelled the policy – that Guardian (1) waived its right to cancel, and (2) failed to provide proper notice to Mrs. Edwards or give her the right to convert the policy. The court addressed waiver first. It distinguished a Fifth Circuit case where the court of appeals found an insurer had waived its right to terminate a group health insurance policy when the participation levels dropped because in that instance the insurer had tried to cancel the policy after an employee filed a claim for healthcare benefits. The court stated that those circumstances were fundamentally different because Guardian canceled the policy at issue here months before Mrs. Edwards died. “When confronted with a similar issue…the Fifth Circuit rejected the plaintiff’s ‘attempt to expand the scope of its waiver analysis to include the defendants’ actions made before the plaintiff…made a claim for benefits.’” Turning to the issue of notice, the court stated that there was no genuine issue that Guardian had mailed a cancellation notice to Mrs. Edwards. “Indeed, the record overwhelmingly supports a presumption that Guardian mailed the cancellation notice.” Accordingly, the court affirmed Guardian’s denial of Mr. Edwards’ claim for benefits and entered judgment in its favor.

Pension Benefit Claims

Ninth Circuit

Rodriguez v. Profit Sharing Plan II Admin. Comm., No. 23-CV-2236 JLS (JLB), 2024 WL 3447521 (S.D. Cal. Jul. 17, 2024) (Judge Janis L. Sammartino). Two former employees of a tractor company, Torrence’s Farm Implements, accuse the administrative committee and two individual committee members of the Torrence’s Farm Implements Profit Sharing Plan II of failing to comply with ERISA. Specifically, plaintiffs allege in counts one and two that defendants violated Section 1025 by failing to provide automatic annual pension benefit statements and by failing to provide profit sharing account statements upon written request. In addition, plaintiffs assert a claim under Section 1133 based on defendants’ failure to provide a written decision responding to a claim submitted by one of the plaintiffs to obtain a loan under the plan. They seek statutory penalties on claims one and two, review of claim three’s loan request, and requested all benefits due, as well as attorneys’ fees and costs. Defendants moved to dismiss the claims for failure to provide requested documents and for failure to respond to a request for benefits. Defendants argued that the second cause of action was untimely, that it improperly relied on requests made by third-party attorneys, that it is duplicative of count one, and that it impermissibly targets individual committee members who are not the named plan administrator. Regarding plaintiffs’ third claim, defendants argued that Section 1133 does not contain a private right of action, the claim should be dismissed for failure to exhaust administrative remedies, and a loan request does not qualify for a claim for benefits under ERISA. The court addressed defendants’ arguments and ultimately granted the motion to dismiss count two and denied the motion to dismiss count three. First, the court agreed with defendants that claims based on requests made more than three years before the action was filed were untimely. However, the court declined to dismiss claims stemming from later requests for information, even though they were associated with the earlier requests, seeing “little reason to immunize a plan administrator from its continuing statutory obligation merely because it neglected that obligation in the past.” Nevertheless, the court dismissed count two “because it relies on a theory belied by the relevant statutory language,” i.e, that plan administrators are required to provide pension benefit statements whenever requested. Under the language of the statute, the court concluded that plan participants are only entitled “to a pension benefit statement once annually,” not whenever they request one. Thus, the court dismissed the second cause of action for failure to state a claim. The court also agreed with defendants that the individual committee members could not be held liable under Section 1132(c), but declined to dismiss the individual defendants from the action because the third cause of action pursuant to Section 1132(a)(3) does not limit liability to administrators. The remainder of defendants’ arguments were far less successful. The court denied the motion to dismiss the improper denial of benefits claim. It found that plaintiffs may sue to require defendants to comply with the requirements of Section 1133, that plaintiffs were not required to exhaust administrative remedies, and that a loan may be a benefit under ERISA and the complaint plausibly alleges the plan provides for loans. Finally, the court specified that its dismissal of count two was without prejudice should plaintiffs believe they can amend their complaint to state a claim.

Pleading Issues & Procedure

Fifth Circuit

Utah v. Su, No. 23-11097, __ F. 4th __, 2024 WL 3451820 (5th Cir. Jul. 18, 2024) (Before Circuit Judges Haynes, Willett, and Oldham). The administrations of Presidents Donald Trump and Joe Biden were obviously very different. Among the countless examples of this is the difference between the Trump-era 2020 “Financial Factors in Selecting Plan Investments” regulation which forbade ERISA fiduciaries from considering “non-pecuniary” environmental social and governance factors in their investment selections, and the 2022 Biden-era Department of Labor (“DOL”) “Investment Duties” rule permitting ERISA fiduciaries to consider “the economic effects of climate change and other environmental, social, or governance factors” among competing investment options so long as the potential investment choices they are selecting from “equally serve the financial interests of the plan.” These flip-flopping regulations under the two administrations are at the center of this litigation brought by 26 States, private interest parties, and trade associations challenging the 2022 Department of Labor Biden-era rule under the Administrative Procedure Act (“APA”) and ERISA. Your ERISA Watch covered the district court’s decision in this case as our notable decision the week of October 4, 2023. In that decision the district court dismissed plaintiffs’ challenge by deferring to the DOL’s interpretation of ERISA pursuant to the Supreme Court’s guidance in Chevron v. NRDC and concluded that the DOL’s 2022 Rule was not “manifestly contrary to the statute.” But keen court followers are surely aware that things have since changed. The Supreme Court made headlines this term by overturning Chevron and paring back federal agencies’ freedom to interpret statutes in its landmark decision in Loper Bright Enterprises v. Raimondo. As a result of “the upended legal landscape,” the Fifth Circuit vacated and remanded the district court’s ruling from last September so that the lower court “can reassess the merits.” The Fifth Circuit took multiple opportunities to state that appellate courts such as itself are “courts of review, not first view,” and relied on this principle to decline to answer any “legal question in the first instance,” especially because the disputed issue here is “one of national significance.” Instead, the court of appeals concluded that the prudent course of action is to follow the “[o]orderly observation of the appellate process” to allow the lower court to interpret the law and issue its reasoned judgment to address the important statutory issue before it and answer the question of whether ERISA allows its fiduciaries to consider factors that are not first and foremost centered on financial performance. Thus, the Fifth Circuit instructed the district court to answer whether the DOL’s 2022 “rule can be squared with either ERISA or the APA,” and stated that when the time comes this same Fifth Circuit panel, “already acquainted with the briefs and arguments of counsel,” can once again weigh in. For now it will be up to the district court to reconsider plaintiffs’ challenge in light of Loper Bright.

Sixth Circuit

Oliver-Smith v. Lincoln Nat’l Ins. Co., No. 1:23-cv-276, 2024 WL 3443004 (S.D. Ohio Jul. 17, 2024) (Judge Jeffery P. Hopkins). The parties jointly moved to file the entire administrative record under seal in this ERISA long-term disability benefits dispute. The parties argued that the administrative record contains sensitive medical and financial information that would subject the plaintiff “to potential harm, embarrassment, or humiliation,” and that sealing the whole of the record makes sense given that it is “replete with sensitive information” and “redaction would present a high risk of inadvertent disclosure of confidential information, would be extremely time consuming and burdensome, and would leave little of value to the public’s interest.” Finally, the parties reasoned that the public would still have access to all pleadings, briefs, and court decisions throughout the litigation which would mitigate the public’s lack of access to the documents within the administrative record itself. The court was persuaded by these arguments and granted the motion to file the administrative record under seal. It expressed that filing the record under seal was justifiable given the strong federal and state policies in favor of protecting private health information, which it agreed outweighs the public’s interest in accessing these records and documents. In sum, the court wrote that although “the parties seek to file the entire Administrative Record under seal, the circumstances demonstrate that the request is in fact no broader than necessary.”

Provider Claims

Third Circuit

Samra Plastic & Reconstructive Surgery v. Cigna Health & Life Ins. Co., No. 23-22521 (MAS) (TJB), 2024 WL 3444273 (D.N.J. Jul. 17, 2024) (Judge Michael A. Shipp). Plaintiff Samra Plastic and Reconstructive Surgery is an out-of-network provider with Cigna Health & Life Insurance Company. In this action, Samra seeks payment of 70% of its billed charges for complex reconstructive breast surgery it provided to a patient insured under an ERISA plan covered by Cigna. Samra asserts seven causes of action. The first three are state law claims for breach of contract, promissory estoppel, and account stated, and the last four are ERISA claims for benefits, failure to establish a summary plan description, failure to establish and maintain claims procedures, and fiduciary breach. Cigna moved to dismiss the action. Its motion was granted in part and denied in part in this order. The court began its analysis with the ERISA claims. First, the court discussed standing. As the plan at issue here contains an unambiguous anti-assignment provision, the court agreed with Cigna that Samra lacks derivative standing under ERISA to assert claims through an assignment of benefits. Nevertheless, Samra contends that it may maintain its ERISA claims through a valid power of attorney conveyed to it from the patient. The court noted, however, that Samra only raised the issue of the power of attorney in its opposition brief and that the complaint was silent on the facts establishing the validity of the power of attorney. It therefore stated that it would not consider these factual allegations which were absent from the complaint and thus granted the motion to dismiss the ERISA claims asserted on the patient’s behalf. The court dismissed the failure to establish and maintain reasonable claims procedure claim with prejudice, but otherwise dismissed the ERISA causes of action without prejudice. Next, the court addressed Cigna’s preemption arguments. It was Cigna’s contention that the three state law claims were preempted by ERISA Sections 502(a) and 514. The court disagreed. With regard to complete preemption under Section 502(a), the court stated, “in the absence of a valid assignment of benefits or power of attorney, as outlined above, Samra cannot bring a claim for benefits under § 502(a) and thus its state law claims are not preempted by § 502(a).” In addition, the court determined that the state law claims fell outside the scope of ERISA’s express preemption provision, Section 514, as they “arose precisely because there was no coverage under the plans for services performed by an out-of-network provider,” and absent the separate agreement between the parties there was no obligation for Samra to provide healthcare or for Cigna to pay for the services. Thus, the court agreed with Samra that the plan was not a critical factor in establishing liability, and the breach of contract, promissory estoppel, and account stated claims were not found to be preempted by ERISA. Finally, the court denied the motion to dismiss the three state law claims, concluding that the complaint’s allegations were sufficient to allege all three under Rule 8 pleading.

Remedies

Tenth Circuit

Ian C. v. United HealthCare Ins., No. 2:19-cv-474-HCN, 2024 WL 3415890 (D. Utah Jul. 15, 2024) (Judge Howard C. Nielson, Jr.). On December 5, 2023, the Tenth Circuit reversed and remanded the district court’s entry of summary judgment in favor of defendant United HealthCare in this medical benefits action involving the residential mental health and substance use treatment of a minor. In that decision (which Your ERISA Watch featured as our case of the week on December 13, 2023) the Tenth Circuit determined that United had arbitrarily and capriciously denied the benefits because it failed to explicitly address plaintiff A.C.’s substance use disorder during the claim administrator and appeals process. The question before the court on remand here was whether to award benefits or to remand the case to the plan administrator for renewed evaluation of the claim. In this instance, as per usual, the court determined that the appropriate remedy was remanding to United given its flawed handling of the claim and its failure to consider addiction as an independent ground for coverage in its denial letters. The court stated that awarding benefits in ERISA actions is only proper where there is “no evidence in the record to support the administrator’s” denial of benefits or under limited circumstances where the insurance company engaged in “clear and repeated procedural errors” when it denied the claim. The court stated that neither circumstance applied here. It stressed that the administrative and medical records contain “evidence that both supports and undermines the conclusion that A.C. no longer qualified for benefits under the Substance-Related Guidelines.” Moreover, the court was unconvinced that the record here reflected “anything like the repeated, clear, and egregious procedural errors that justified the award of benefits in D.K.” Under these circumstances, the court ruled that remand was the only appropriate remedy.

Statute of Limitations

Fifth Circuit

Bailey v. United Healthcare Ins. Co., No. 4:22-CV-02733, 2024 WL 3418003 (S.D. Tex. Jul. 15, 2024) (Judge Kenneth M. Hoyt). Plaintiffs Keith Lemon and Dr. Jason Bailey sued United Healthcare Insurance Company under ERISA seeking greater reimbursement for surgery Dr. Bailey performed on Mr. Lemon under the terms of a health insurance policy. The parties filed cross-motions for summary judgment. Important for the present discussion was the timing of plaintiffs’ lawsuit. United issued its final adverse decision on April 26, 2019. This action was brought on June 29, 2022, over three years later. According to the terms of the policy’s limitations provision, legal actions against United must be brought “after the 61st day of written proof of loss is filed or within three years of the date we notified you of our final decision on your appeal or you lose any rights to bring such an action against us.” United thus argued that plaintiffs’ action was time-barred. The court agreed. To begin, the court stated that plaintiffs could not use Section 1132(c)(1) to toll the plan’s limitations period based on an argument that United failed to produce plan documents upon request. The court was not convinced that plaintiffs diligently pursued their rights as required for equitable tolling to apply. Rather, the court found that United presented a compelling excuse for not providing the documents directly to the healthcare provider, while it could not say that plaintiffs did their best to respond to United’s arguments regarding the medical provider authorization form. Next, plaintiffs argued that Untied violated ERISA by failing to disclose the limitations period. The court, however, read 29 C.F.R. § 2560.503-1(g)(1)(iv) differently. “While the statute explicitly requires that UHIC describe the time limits applicable to the plan’s procedures, it is silent regarding the time limits to bring a civil action. Thus, the Court determines that no disclosure is required.” Finally, the court rejected plaintiffs’ preferred reading of the contractual text. Plaintiffs maintained that the use of the word “or” instead of the word “and” permits them to file suit either after the 61st day of written proof of loss is filed or within three years of the final adverse decision on appeal. But the court did not agree that the word or is “always disjunctive.” In fact, in this instance, the court stated that the better reading of the limitations provision was to understand or as having an inclusive sense. The court viewed plaintiffs’ preferred reading as leading to an absurd result. “The absurdity of the plaintiffs’ interpretation is straightforward: the limitations provision would leave the plaintiff free to sue UHIC in perpetuity, providing no limitation at all.” Unlike plaintiffs’ interpretation, the court viewed United’s interpretation requiring plaintiffs to sue within three years of its final appeal decision as logical, in line with ordinary rules of contract interpretation, and unambiguously making sense. For these reasons, the court found that plaintiffs’ claims are time-barred under the contractual limitations period and entered summary judgment in favor of United without reaching the parties’ arguments on the merits.

Venue

Seventh Circuit

Cline v. The Prudential Ins. Co. of Am., No. 23-cv-15091, 2024 WL 3455089 (N.D. Ill. Jul. 18, 2024) (Judge Sharon Johnson Coleman). Defendant Prudential Insurance Company of America moved to transfer venue in this long-term disability benefit action filed by plaintiff Donald Cline. The parties do not dispute that venue is proper in both the Northern District of Illinois, the venue Mr. Cline chose, and the Middle District of Tennessee, where Prudential seeks to move the action. Instead, the parties disputed whether transferring the case was in the interest of justice and which venue was more convenient. Mr. Cline argued that his choice of forum should be given substantial deference. However, the court agreed with Prudential that Mr. Cline’s venue choice should be given little deference because Mr. Cline lives in the proposed transfer district. In addition, the court found that other private and public factors weighed in favor of transferring venue. The court highlighted the fact that the events occurred in the Middle District of Tennessee where Mr. Cline applied for and received his denial of benefits. Given this, the court was receptive to Prudential’s argument that there will be relative ease and convenience favoring the parties in Tennessee, where Mr. Cline lives, worked, and received medical treatment. On the other hand, the court was not convinced that, as Mr. Cline suggested, this case will be tried on the administrative record without discovery, document production, or witnesses. Instead, it stated that neither party can know for certain “what the outcome of the case will be.” Considering “the desirability of resolving controversies in their locale,” the court concluded that there are significant enough connections between this case and the Middle District of Tennessee to warrant transfer. Thus, Prudential’s motion to transfer was granted.

Smith v. UnitedHealth Grp., No. 23-2369, __ F. 4th __, 2024 WL 3321646 (8th Cir. Jul. 8, 2024) (Before Circuit Judges Colloton, Erickson, and Kobes)

Cross-plan offsetting is a controversial practice – sometimes referred to as “self-help” for third-party administrators of healthcare plans and, alternatively, “robbing Peter to pay Paul” – to which plan participants, healthcare providers, and the Department of Labor alike have objected. It is in the spotlight this week in an Eighth Circuit decision giving the green light to UnitedHealth Group Inc. (“United”) to utilize this practice, at least where it is expressly contemplated by the plan.

According to the Eighth Circuit, United administers both fully insured healthcare plans and self-funded plans and utilizes cross-plan offsetting with respect to both types of plans to recoup claimed overpayments to medical providers. It does so by offsetting the amount due to that provider after a participant in any United-administered healthcare plan obtains services from that medical provider. In other words, if United later decides that it as overpaid a provider with respect to medical benefits for a participant in Plan A, it reduces the amount it pays that provider for medical services to a participant in Plan B.  

Plaintiffs Rebecca Smith and Cristine Ghanim were participants in two separate self-funded healthcare plans, each of which had provisions in the governing summary plan description expressly permitting United to recoup overpayments through cross-plan offsets and delegating to United discretion in deciding how to implement cross-plan offsets. After both plaintiffs underwent medical procedures covered under their plans, United decreased the amount it paid to the providers for these procedures by several thousand dollars, claiming that it had previously overpaid these providers for services to other participants in other plans. Ms. Smith and Ms. Ghanim claimed they were liable to their providers for the unpaid amounts and that decreasing the amount it paid to their providers benefited United in a direct financial sense. They brought suit claiming that United violated its duties of prudence and loyalty as an ERISA fiduciary through these cross-plan offsets.    

The district court determined that neither plaintiff had suffered a concrete injury from the cross-plan offsets, and that both therefore lacked constitutional standing to assert the ERISA fiduciary breach claims. The Eighth Circuit agreed in a decision as short as it is hard to follow.

Citing an earlier Eighth Circuit decision, Mitchell v. Blue Cross Blue Shield of North Dakota, 953 F.3d 529 (8th Cir. 2020), Ms. Smith and Ms. Ghanim asserted that they suffered a similar concrete injury. In Mitchell, the Eighth Circuit held that healthcare plan participants had a constitutionally-cognizable injury when their providers were underpaid plan benefits to which the participants were contractually entitled regardless of whether the healthcare provider charges the participants for the balance of the bill. The court, however, found Mitchell distinguishable because unlike the plaintiffs in Mitchell, Ms. Smith and Ms. Ghanim “do not allege a breach of contract as they are not contractually entitled to having a payment of approved benefits be made in cash.” To the contrary, according to the court, Ms. Smith and Ms. Ghanim “recognize that their plans explicitly delegate to United the discretion to implement cross-plan offsetting.”

The court similarly distinguished Carlsen v. GameStop, Inc., 833 F.3d 903 (8th Cir. 2016), reasoning that “in that case there was a breach of contract while the plans here specifically allow for cross-plan offsetting.” In the court’s view, the plaintiffs’ claim that the plan language must be read consistently with ERISA asserted only a statutory claim and not a breach of contract and, as such, was not sufficient to establish an injury for Article III purposes.

Finally, the court rejected the plaintiffs’ argument that their liability to their providers for the unpaid balance of their bills constituted a sufficient injury for Article III purposes. In the court’s view, plaintiffs’ asserted liability amounted to a mere risk of future harm. Because the injunctive relief plaintiffs sought against United would not prevent the medical providers from collecting on their unpaid debts, the Eighth Circuit held that this claimed basis for constitutional standing also failed.    

Breach of Fiduciary Duty

Eighth Circuit

Shipp v. Cent. States Mfg., No. 5:23-CV-5215, 2024 WL 3316303 (W.D. Ark. Jul. 5, 2024) (Judge Timothy L. Brooks). Three retired employees of Central States Manufacturing who participate in the company’s Employee Stock Ownership Plan (ESOP) accuse the company, its board of directors, and GreatBanc Trust Company of breaching their fiduciary duties owed to the plan and its participants under ERISA in this putative class action lawsuit. Plaintiffs allege that defendants conducted two transactions that collectively negatively impacted the value of their ESOP shares. The first event occurred in August 2020, when Central States took out a bank loan for $40 million, which it then spent to redeem 2.2 million shares of company stock owned by retired ESOP participants. Instead of retiring these shares after redeeming them, the company placed them back into circulation to fund future contributions to employee retirement accounts. In December 2020, the company conveyed the 2.2 million redeemed shares to the ESOP in exchange for the plan issuing the company a promissory note of $40 million to be repaid over 30 years. These shares received by the ESOP were then retained in a suspense account and would gradually be released and made available for the ESOP retirement accounts as the loan was repaid overtime. Plaintiffs allege that this second transaction significantly diluted and diminished the value of the plan’s existing stock and saddled the plan with unnecessary debt, causing major financial harm. Central States justifies these transactions by arguing that they were done because of legitimate business concerns over “a looming financial crisis” from the payoff process to retirees which they projected could create a cashflow problem for the company or even cause it to go into bankruptcy. Central States argued that under Eight Circuit precedent a company need not make normal business decisions in the interest of plan participants even when those decisions have a collateral effect on employee benefits. Plaintiffs, however, suggest that defendants could have taken many other alternative paths to address their alleged financial concerns which would not have harmed plan participants in the same way. The path defendants did take, plaintiffs allege, was imprudent, disloyal, and put their own interests ahead of those of the plan participants, in violation of ERISA. Defendants moved to dismiss the action, for lack of standing and for failure to state claims. Their motions were denied by the court. First, the court concluded that plaintiffs plausibly alleged that the ESOP overpaid for the new shares it purchased, causing an injury to the plan and to its participants whose shares were diluted. Accordingly, it found plaintiffs had standing to assert their claims. Second, the court disagreed with defendants that plaintiffs needed to exhaust their administrative remedies before bringing suit, declaring plaintiffs’ claims were ripe for adjudication. Finally, the court was satisfied that the complaint plausibly stated claims for breaches of fiduciary duties under ERISA, and expressed that defendants’ arguments to the contrary were fact questions not properly resolved under Rule 12(b) analysis. “Though Defendants contend that the price of shares and the value of the promissory note were both properly calculated and clearly in the best interests of the ESOP and its participants, the Amended Complaint plausibly alleges otherwise.” For these reasons, the court denied both motions to dismiss and ordered defendants to file their answers to the amended complaint.

Class Actions

Fourth Circuit

Frankenstein v. Host Int’l, No. 20-1100-PJM, 2024 WL 3362435 (D. Md. Jul. 10, 2024) (Judge Peter J. Messitte). One of the many benefits of 401(k) plans to employees is that plan participants may make pretax retirement contributions. One of the downsides of 401(k) plans though, especially for low-wage employees, is that they require individuals to prioritize future savings over cash income today, a tradeoff that many people are simply not in the financial position to make. These two truths about defined-contribution retirement plans were in conflict with one another in this interesting putative ERISA class action. Your ERISA Watch has not covered this case in some time. Our last reporting on this lawsuit was in March, 2021, when we summarized the court’s order denying defendants’ motion to dismiss. To refresh your memories, this action involves the HMSHost 401K Retirement Savings Plan. Plaintiff Dan Frankenstein is a participant in the plan and an employee of Host International, Inc. Specifically, Mr. Frankenstein is a bartender at an airport in California, who works for both wages and tips. The plan includes participants who work for tips as well as those who do not. It also has some participants who are union members and some who do not belong to a union. As relevant here, Host’s policy around tips, due to its practice paying tipped employees their credit card tips in cash at the end of each workday, prevents employees from deferring these earnings on a pretax basis. The court expressed its understanding of the dilemma as follows, “[f]or a two week pay period, assume that Plaintiff earned $500 in regular wages, received $500 in reported tips, has $200 in tax withholdings, and elected to defer 75% of his Compensation into his 401(k) account. His compensation for the two-week pay period would be $1,000 and his 401(k) deferral would be $750. However, since he [already] received $500 of his Compensation in tips…his paycheck includes $500 in regular wages only. Deduct from that amount $200 in taxes, which leaves only $300 to be deferred to Plaintiff’s 401(k) account. The remaining $450 would have to be contributed after-tax [through an arrears contribution] if Plaintiff chose to do so.” In this action, Mr. Frankenstein alleges that defendants’ refusal to permit tipped employees to defer their credit card tips on a pretax basis violates the terms of the plan and constitutes breaches of their fiduciary duties under ERISA Section 502. He further contends that defendants’ refusal to permit employees to defer credit card tips amounts to discrimination against tipped-employee plan participants in violation of Section 501(a), and that defendants’ decision to prevent pre-tax credit card tip deferrals is an arbitrary and capricious violation of Section 502(a)(1)(B). On March 11, 2022, Mr. Frankenstein filed the present motion to certify the proposed class of all current and former participants in the plan who received reported credit card tips as compensation outside their paycheck and had a deferral election in place at the time he or she received the reported tips. It’s taken over two years for the court to issue its decision on the motion. In this order the court denied the motion to certify. The problem is a class, like a union, needs to be united. And here, it seemed Mr. Frankenstein may be the only worker who desires the relief this litigation seeks. Pointedly, Mr. Frankenstein failed to identify a single individual other than himself who wants what he does. The court was broadly concerned about evidence and testimony that defendants supplied over widespread opposition, from both the workers and unions, about the company’s attempts to change tip payments to make them eligible for contribution to their retirement accounts on a pretax basis, and it found that defendants offered compelling evidence “that many of the members of Frankenstein’s proposed class are in fact ardently opposed to the relief he seeks.” This opposition ultimately posed a commonality issue, “since people are in different situations and some feel they’d be harmed by a modification that might go the way plaintiff would want to go.” It was this fundamental intraclass conflict which left the court unable to certify the class under Rule 23(a). Mr. Frankenstein for his part accused the defendants of “manufacturing” non-existent intraclass conflicts, and said that what the putative class members opposed was not the opportunity to make pretax deferrals with credit card tips, so much as defendants’ paycard system which took away their day-of cash wages, which many of the workers rely upon to make ends meet. But the court was not so convinced. In the court’s view, Mr. Frankenstein turned the class-certification inquiry “upside down” because “it is the plaintiff’s burden to prove that intraclass conflicts do not exist.” “To that end, the Court granted the parties leave to conduct class discovery until the future contemplated class-certification hearing might take place…which was held more than a year later. But when the time came for Frankenstein to present other ‘class proponents,’ quite simply, he brought forth none.” In light of this conflict, the court determined that defendants defeated Mr. Frankenstein’s bid for certification under Rule 23, and accordingly denied his motion to certify.

Disability Benefit Claims

Fourth Circuit

Penland v. Metro. Life Ins. Co., No. C. A. 8:21-3000-HMH, 2024 WL 3327366 (D.S.C. Jul. 8, 2024) (Judge Henry M. Herlong, Jr.). This disability benefits action was back before the district court on remand from the Fourth Circuit Court of Appeals after the appellate court reversed the district court’s June 22, 2022 summary judgment order affirming MetLife’s termination of long-term disability benefits to plaintiff Tracy Penland. The Fourth Circuit vacated that decision because of an intervening change in controlling law, which came about in its decision in Tekmen v. Reliance Standard Life Ins. Co., 55.4th 951 (4th Cir. 2022), favoring resolution of ERISA benefit disputes pursuant to Federal Rule of Civil Procedure 52 over summary judgment. Consistent with the instructions from the Fourth Circuit, the district court issued its findings of fact and conclusions of law pursuant to Rule 52 in this decision. Mr. Penland left his position as a procurement specialist for an automotive company in August 2015 and subsequently began receiving disability benefits. Mr. Penland suffers from many health conditions including gastrointestinal diseases, musculoskeletal ailments, a liver condition, mental health disorders, and chronic pain and sleep problems. Pursuant to the terms of the disability policy, several of Mr. Penland’s conditions were limited to maximum benefit payments of 24-months. MetLife maintains that non-limited conditions do not render Mr. Penland unable to earn more than 60% of his pre-disability earnings from any occupation to which he is reasonably qualified, and based its decision to discontinue benefits on this conviction. Ultimately, the court agreed with MetLife. Before it got there though, the court needed to resolve the parties’ dispute over the appropriate standard of review. MetLife argued that it was entitled to abuse of discretion review, while Mr. Penland contended that de novo review applies. The court sided with Mr. Penland, as the plan’s language requiring proof of disability satisfactory to MetLife was nearly identical to language that the Fourth Circuit found insufficient to unambiguously confer discretionary authority in a case before it in 2013, Cosey v. Prudential Ins. Co. of Am., 735 F.3d 161 (4th Cir. 2013). However, under de novo review the court was not convinced that Mr. Penland met his burden of proving his disability. The court found that Mr. Penland did not present objective evidence of radiculopathy, and that there was insufficient proof that his non-limited conditions prevent him from earning more than 60% of his pre-disability salary. The court stressed that it would not consider the effects of Mr. Penland’s limited conditions, rejecting the approach Mr. Penland argued in favor of considering the cumulative effects of both his limited and non-limited conditions. Thus, after having considered the entirety of the administrative record, the court found that Mr. Penland no longer satisfied the plan’s definition of disability as of the date of MetLife’s termination, and therefore affirmed MetLife’s decision. Accordingly, the court reached the same conclusion as it had in 2022, and entered judgment in favor of MetLife.

Eleventh Circuit

Rosenberg v. Reliance Standard Life Ins. Co., No. 23-13761, __ F. App’x __, 2024 WL 3385678 (11th Cir. Jul. 12, 2024) (Before Circuit Judges Wilson, Luck, and Anderson). Dr. Krista Rosenberg was part of a medical practice that provided disability insurance through an ERISA policy insured by Reliance Standard Life Insurance Company. The practice did not pay Dr. Rosenberg directly, but instead made payments to her Chapter S corporation. Sadly, Dr. Rosenberg developed a permanent and total disability and could no longer continue working. As a result, she filed a claim for disability benefits with Reliance. Reliance, however, denied her claim because Dr. Rosenberg’s income was paid to her corporation and not directly to her. In a denial letter that both the district court and the Eleventh Circuit would later say “borders on the absurd,” Reliance Standard determined that Dr. Rosenberg had no eligible earnings upon which to base a benefit in accordance with the plan and that she was therefore not entitled to disability benefits. Simply, and unsurprisingly, the district court and the Eleventh Circuit in this decision on appeal, agreed that “the only reasonable interpretation of the Policy is that Rosenberg’s ‘Covered Monthly Earnings’ includes her ‘compensation from the partnership’ notwithstanding the fact that it took the form of payments to her closely held pass-through corporation. We agree with the district court that Reliance cannot deny benefits to Rosenberg solely on the basis that she has no ‘Covered Monthly Earnings’ because her compensation from the partnership was paid to her closely held pass-through corporation rather than paid directly to her. Accordingly, we affirm the judgment of the district court without the necessity of addressing the alternate theory for affirmance urged by Rosenberg.” In this way, the Eleventh Circuit, in its brief unpublished per curiam decision, concluded Reliance’s interpretation was illogical and undermined the intent of the policy as a whole, and that its denial of Dr. Rosenberg’s disability benefits was arbitrary and capricious.

ERISA Preemption

Ninth Circuit

Dedicato Treatment Ctr. v. Aetna Life Ins. Co., No. 2:24-cv-03136-CAS-PDx, 2024 WL 3346241 (C.D. Cal. Jul. 8, 2024) (Judge Christina A. Snyder). An out-of-network drug and alcohol treatment center, plaintiff Dedicato Treatment Center, Inc., filed a six count state law complaint in state court against defendant Aetna Life Insurance Company seeking the difference between the billed and paid amounts for healthcare it provided to three patients insured with ERISA welfare plans administered by Aetna. Aetna removed the matter to the federal judicial system and then filed a motion to dismiss it arguing the claims are preempted under ERISA Section 514(a). Shortly after filing its motion to dismiss, Aetna filed a notice of supplemental authority flagging the Ninth Circuit’s opinion in Bristol SL Holdings, Inc. v. Cigna Health & Life Ins. Co., 103 F.4th 597 (9th Cir. 2024). (Your ERISA Watch featured the decision as our case of the week on June 5, 2024.) Relying on the Bristol decision and its reasoning, the court agreed with Aetna that Dedicato’s state law claims relate to the ERISA plans and that they are therefore barred by conflict preemption. Like the Ninth Circuit recognized in Bristol, the court found that the healthcare provider was seeking to obtain through state law claims an alternative mechanism to secure plan-covered payments the parties discussed on the phone to verify benefits and coverage. The court noted that plaintiff concedes “the existence of the plan is what caused [it] to contact Aetna and see if Aetna would agree to pay…for the treatment of Aetna’s plan participants.” Thus, the court stated that the gravamen of the complaint is an assertion that Aetna paid less to the provider than the value of the services rendered, and that payment is therefore contingent on the existence of the terms of the patient’s ERISA-governed healthcare plans. Finally, the court expressed that the state law claims also have an impermissible connection with the ERISA plan. “Permitting plaintiff to pursue such claims would force courts to adjudicate whether all payments made to out-of-network providers are ‘reasonable,’ regardless of the terms and rates set forth in patients’ plans. Accordingly, plaintiff’s claims are barred because they bear an impermissible ‘connection with’ ERISA plans.” For these reasons, the court granted Aetna’s motion to dismiss. Dismissal was without prejudice and the provider was given the opportunity to file an amended complaint should it wish.

Medical Benefit Claims

Third Circuit

Palazzi v. Cigna Health and Life Ins. Co., No. 2:23-cv-06278 (BRM) (AME), 2024 WL 3361615 (D.N.J. Jul. 8, 2024) (Judge Brian R. Martinotti). Plaintiff Pierangela Bonelli was referred to a back surgeon, Dr. Roger Hartl, after she began experiencing intense back pain. Dr. Hartl recommended surgery to treat Ms. Bonelli. Ms. Bonelli has health insurance coverage through an employer sponsored health plan administered by defendant Cigna Health and Life Insurance Company. Dr. Hartl is an out-of-network provider. Before he would perform the surgery, Dr. Hartl needed to receive pre-authorization from Cigna. He followed the plan’s requirements to obtain the necessary pre-authorization and received a letter from Cigna approving the pre-authorization request for Ms. Bonelli’s surgery. Based on the approval, Ms. Bonelli underwent the back surgery. In the end though Cigna denied coverage for the surgery, stating that the plan does not provide for out-of-network benefits. The insurance provider maintains that the authorization letter specifically approving the surgery “was sent in error.” In this action, Ms. Bonelli and her family member, plaintiff Marco Palazzi, challenge Cigna’s denial. This case was originally brought as a state law action, but Cigna removed it to federal court arguing ERISA preempted the state law causes of action. Plaintiffs then amended their complaint to assert an ERISA claim instead. Cigna responded to the ERISA complaint by filing a motion to dismiss. On August 25, 2023, the court granted the motion to dismiss, finding that the complaint failed to articulate how the plan entitles plaintiffs to the benefits they seek. Dismissal was without prejudice, and plaintiffs timely amended their complaint. Cigna once again moved for this dismissal. This time, its motion to dismiss was denied. “Here, the Court finds Plaintiffs have sufficiently alleged an ERISA claim for unpaid benefits in the SAC because they have plausibly alleged that the Plan, through its ‘Medical Management Program’ provision, provides coverage for Bonelli’s surgery with an out-of-network provider and that they are entitled to reimbursement under the Plan.” The court noted that the plan “does not say that it will not cover any out-of-network providers under any circumstance.” In fact, the plan specifically provides for a process, which plaintiffs and their healthcare provider followed, for pre-authorizing out-of-network claims. The court said it was reasonable to infer that this process exists because the plan in some circumstances covers healthcare with providers who are not in network. Therefore, the court found that plaintiffs plausibly alleged an ERISA Section 502(a)(1)(B) claim for recovery of benefits and thus denied the motion to dismiss the second amended complaint. 

Tenth Circuit

K.S. v. Cigna Health & Life Ins. Co., No. 1:22-cv-00004-TC-DBP, 2024 WL 3358653 (D. Utah Jul. 8, 2024) (Judge Tena Campbell). In this action mother and son K.S. and Z.S. seek judicial review of Cigna Health and Life Insurance Company’s denial of their claim for coverage under the Accenture LLP Benefit Plan for the residential mental healthcare treatment Z.S. received in 2019 and 2020 at a facility in Utah to stabilize him during a severe mental health crisis. Before seeking the treatment at issue in the instant action, Z.S. had cycled out of hospitals, partial hospitalization programs, intensive outpatient facilities, and several other forms of psychiatric healthcare, and had attempted suicide on at least four occasions. The long-term residential care the family seeks coverage of in this action was strongly recommended to them by Z.S.’s treating providers given his long history of other treatment options which had failed to stabilize him or improve his health. The family asserted two causes of action, a claim for recovery of benefits and a claim for violation of the Mental Health Parity and Addiction Equity Act. The parties filed cross-motions for summary judgment on the denial of benefits claim under arbitrary and capricious standard of review. The court ruled that Cigna’s denial was an abuse of discretion and entered judgment in favor of the family. Specifically, the court found that Cigna did not engage in a meaningful dialogue with the family or the opinions of Z.S.’s healthcare providers, that its denials were cursory and often contradicted by the medical record, and that it applied the medical necessity criteria inconsistently. The court further criticized Cigna’s failure to discuss Z.S.’s prior treatment history and his attempts to receive lower-levels of psychiatric care which had been ineffective. “Moreover, Cigna essentially conceded at the hearing on the motions for summary judgment that there is evidence in the record showing that at various points throughout his stay at Elevations, Z.S.’s treatment may have met the ‘medical necessity’ criteria. But Cigna’s letters fail to address this evidence or explain why coverage for those dates was denied…In sum, Cigna failed to meet the minimum requirements for explaining why it deemed that Z.S.’s treatment at Elevations was not ‘medically necessary’ in its denial letters. Cigna’s denial of coverage warrants reversal on this basis.” For these reasons, the court granted plaintiffs’ motion for summary judgment and denied defendants’ motion. However, the court declined to award the family benefits. In line with other recent decisions from the District of Utah, the court here concluded that remand was the proper remedy to rectify Cigna’s procedural errors handling the claim for benefits, as the “Tenth Circuit has found that remand was appropriate where the plan administrator committed procedural errors similar to those Cigna made here.” The court further justified its decision to remand to Cigna by stating that it “cannot say that there was no evidence in the record to support Cigna’s denial of benefits, or that the Plaintiff was clearly entitled to the claimed benefits.” As a result, the court remanded to Cigna for further considerations of the family’s claim. However, it cautioned the insurance company that it may not adopt any new rationale to deny the claim “not previously conveyed to the Plaintiffs.”

Pleading Issues & Procedure

Third Circuit

Harper v. United Airlines, No. 23-22329 (ZNQ) (JBD), 2024 WL 3371404 (D.N.J. Jul. 11, 2024) (Judge Zahid Quraishi). Pro se plaintiff Daniel Harper filed a complaint in New Jersey state court alleging United Airlines of wrongfully refusing to cancel his health insurance coverage and improperly continuing to deduct monthly premium payments, causing him $15,000 in damages. United Airlines removed the case to federal court. The district court in turn found that its jurisdiction was proper, as the health insurance plan at issue is governed by ERISA and the sole legal basis for the relief Mr. Harper seeks is under ERISA’s civil enforcement mechanism. United Airlines has since moved to dismiss the action for failure to state a claim. Its core argument was that Mr. Harper cannot plausibly plead a claim for any relief under ERISA because he “has already received the principal relief that his Complaint seeks – namely cancellation of coverage for his dependent effective February 1, 2023 and a refund on the premiums paid for that coverage.” Mr. Harper concedes this fact. United contends further that Mr. Harper is not entitled to any additional relief, and that there is no longer an active controversy in dispute. In its decision, the court was unsure about this. It stated, “a few questions remain regarding Plaintiff’s claims. First, Plaintiff seeks $15,000 in damages but does not explain, in either the Complaint or his Opposition, what the $15,000 damages amount relates to. Second, Plaintiff argues that his ‘family continues to suffer and incur damages due to the action of Defendant and attaches a bill he received on June 5, 2024…for services rendered in October 2023 to support his position. Finally, Plaintiff argues that Defendant granted his appeal only after [he] filed the Complaint because Defendant ‘could not explain their negligence or blatant disregard of the court order.” However, the court highlighted that Mr. Harper raised these facts for the first time in his opposition, and stressed that they were absent from the complaint itself. Therefore, the court said it would not consider “the June 2024 Bill or Plaintiff’s conclusory and unsubstantiated assertions that Defendant was negligent in evaluating the sufficiency of Plaintiff’s claims.” Accordingly, the court found that Mr. Harper failed to successfully plead a claim for relief under ERISA Section 502 and therefore granted the motion to dismiss, though the complaint was dismissed without prejudice.

Fourth Circuit

Doe v. Blue Cross & Blue Shield of N.C., No. 3:23-cv-750-MOC-WCM, 2024 WL 3346319 (W.D.N.C. Jul. 8, 2024) (Judge Max O. Cogburn, Jr.). Plaintiffs John Doe and Mary Doe brought this suit against Blue Cross and Blue Shield of North Carolina to challenge its denial of their claim for benefits relating to Mary Doe’s stay at a treatment center. Plaintiffs asserted two causes of action under ERISA, a claim for benefits and an equitable relief claim for violation of the Mental Health Parity and Addiction Equity Act. Blue Cross moved to strike the complaint or alternatively dismiss for failure to state a claim. Blue Cross supplied three reasons why it believed the court should strike or dismiss the complaint. First, it argued that the complaint violates Federal Rule of Civil Procedure 10(a) because the title of the complaint does not include the names of the parties. Second, it contended that the Section 502(a)(3) claim was improperly duplicative of the claim for benefits under Section 502(a)(1)(B). Finally, Blue Cross asserts that the action should be dismissed as untimely filed under the terms of the plan. In this decision, the court only engaged with the Blue Cross’s last argument. The terms of the plan state that “[a]ny civil action you may choose to bring under ERISA must be filed within one year of the end of the plan’ first level internal claim and appeal procedure,” unless the claimant pursues the plan’s external review and appeal procedure. This action was brought “214 days after the one-year period of limitations ran from the March 18, 2022 First Level Denial.” Thus, plaintiffs’ action was only timely if they could establish that their complaint satisfies the second limitations period for parties who elect to pursue the plan’s external review claim and appeal procedure.” The court concluded that plaintiffs did not do so. “While Plaintiffs did pursue a second level appeal, they failed to pursue the Plan’s external review claim procedure, which required Plaintiffs to file a request for external review with the North Carolina Department of Insurance.” Further, the court stated that even if it tolled the limitations period during the 47 days between plaintiffs’ submission of their second level appeal and defendant’s denial of that appeal, the lawsuit remains untimely. Accordingly, the court dismissed plaintiffs’ complaint as time-barred, and therefore did not address Blue Cross’s alternative grounds for dismissal. The action was dismissed with prejudice.

Withdrawal Liability & Unpaid Contributions

Third Circuit

Allied Painting & Decorating, Inc. v. Int’l Painters & Allied Trades Indus. Pension Fund, No. 23-1537, __ F. 4th __, 2024 WL 3366492 (3d Cir. Jul. 11, 2024) (Before Circuit Judges Hardiman, Matey, and Phipps). In 2005, the employer Allied Painting & Decorating, Inc. closed its operations and stopped contributing to the International Painters and Allied Trades Industry Pension Fund. Less than five years later, the owner of Allied, Robert Smith, created a new painting company called Allied Construction Management. The Multiemployer Pension Plan Amendments Act (MPPAA) kicked it once Allied returned to the painting industry, triggering withdrawal liability. But the Fund dragged its feet, and twelve years would go by before the Fund did anything about this. The Fund did not send its demand to Allied for $427,195 until 2017. Given the great delay since it last contributed to the fund, the employer objected to the assessed withdrawal liability assessment on the basis of laches. The dispute went into arbitration. The arbitrator found that the Fund did not act “as soon as practicable” in issuing a notice and demand to Allied. Nevertheless, the arbitrator concluded that Allied was not prejudiced by this delay, which doomed its laches defense. Accordingly, arbitration ended with the arbitrator concluding that Allied owed the $427,195 to the Fund for its withdrawal. The employer appealed this decision in federal court. The district court concluded that Allied was indeed prejudiced by the delay and vacated the award. The Fund appealed. The Third Circuit issued this decision affirming the district court’s order vacating the arbitration award, though it did so on different grounds. “Much is made of whether Allied suffered prejudice from this lengthy delay. But diligence is what the Multiemployer Pension Plan Amendments Act of 1980 requires, and all agree that the Fund did not send Allied the bill ‘as soon as practicable’ after Allied’s withdrawal…As a result, the Fund cannot recover the claimed withdrawal liability, and we affirm the District Court’s order vacating the Arbitrator’s Award.” The Third Circuit was adamant that the only coherent reading of the statute is to understand the “as soon as practicable” requirement as an essential element for a plan to recover a withdrawal liability. “That a fund provide notice of its withdrawal-liability assessment and demand payment from the employer ‘as soon as practicable’ following the employer’s withdrawal is a requirement of § 1399(b)(1). If this statutory requirement is not met, the fund’s claim for the employer’s withdrawal liability must fail.” Having concluded that this “independent statutory requirement” was not met here, the Third Circuit concluded that the Fund could not recover the withdrawal liability amount from Allied under MPPAA. Thus, the court of appeals affirmed the lower court’s order vacating the arbitrator’s award.

Goldfarb v. Reliance Standard Life Ins. Co., No. 23-10309, __ F.4th __, 2024 WL 3271012 (11th Cir. July 2, 2024) (Before Circuit Judges William Pryor, Jill Pryor, and Marcus)

Of all the types of ERISA welfare benefit disputes, accidental death cases are perhaps the most fascinating. In these cases, everyone agrees that the insured person has expired. The central issue typically is whether the death was an “accident” under the terms and conditions of the benefit plan.

But what is an “accident”? Many benefit plans do not even define the term while others use ambiguous or even circuitous language that confuses more than it edifies. Over the years different courts have used different approaches, satisfying no one. Supreme Court Justice Benjamin Cardozo once famously stated that arguments over how to define the term risked “plung[ing] this branch of the law into a Serbonian Bog.”

The Eleventh Circuit boldly waded into this bog in this week’s notable decision. The plaintiffs were Levi and Benjamin Goldfarb, whose father was Dr. Alexander Goldfarb-Rumyantzev. Dr. Goldfarb, an experienced mountain climber, traveled to Pakistan in 2020 where he joined up with his climbing partner, Zoltan Szlanko. Szlanko was also an accomplished mountaineer who had been a certified climbing instructor and professional climber for nearly 30 years.

In January of 2021 Szlanko and Dr. Goldfarb began ascending 6,209-meter-high Pastore Peak. However, Szlanko, who had scouted ahead, determined that the conditions were too dangerous to keep going. He returned to Dr. Goldfarb and told him that the route was unsafe because of “a labyrinth of hidden crevasses either covered with loose snow or stones” and “black ice” that was “dangerously breaking” and “provid[ed] no grip.”

Szlanko headed back down the mountain. Dr. Goldfarb told Szlanko that he would stay at base camp and follow Szlanko down the next day. However, the next morning Dr. Goldfarb called Szlanko and said that he wanted to continue on up the mountain. Szlanko warned Dr. Goldfarb against it and told him that he could not “take responsibility” if Dr. Goldfarb continued.

Dr. Goldfarb ignored the warnings and proceeded to try to summit Pastore Peak. When he stopped communicating and did not return, a search was conducted. His body, although identified from the air by Szlanko, was never recovered.

Dr. Goldfarb was insured under an ERISA-governed accidental death benefit plan for $500,000. However, when the Goldfarb brothers, as beneficiaries under the plan, submitted a claim to the plan’s insurer, defendant Reliance Standard Life Insurance Company, Reliance Standard denied the claim on the ground that the cause of Dr. Goldfarb’s death was “unknown.” According to Reliance Standard, the brothers could not establish that the death was an “accident,” and thus the claim was not payable.

The brothers sued in federal district court and prevailed. The district court determined that Dr. Goldfarb’s death was an accident, ruled that Reliance Standard’s protestations to the contrary were arbitrary and capricious, and granted summary judgment to the brothers. Reliance Standard appealed.

On appeal the Eleventh Circuit, like the district court, found that the plan gave Reliance Standard discretionary authority to determine benefit eligibility, and thus reviewed Reliance Standard’s denial to see if it was “supported by reasonable grounds.”

The Eleventh Circuit then examined the plan and noted that, like many such plans, it did not define the word “accident.” As a result, the court adopted the test used by the district court and the parties in determining whether Dr. Goldfarb’s death was an “accident.” This test was created by the First Circuit in Wickman v. Northwestern Nat’l  Ins. Co., has been adopted by six other circuits, and is comprised of two parts.

First, the court “considers the subjective expectations of the insured about the likelihood of injury from engaging in the conduct that resulted in the loss.” If the decedent’s subjective expectations are unknowable, the court then considers “an objective analysis of the insured’s expectations.” Under this analysis, the court considers “whether a reasonable person, with background and characteristics similar to the insured, would have viewed [injury or death] as highly likely to occur as a result of the insured’s intentional conduct.” If so, the death is not an “accident.”

Dr. Goldfarb’s subjective expectations were unknown because he did not express them. Thus, the court proceeded to the second part of the Wickman test and discussed whether a reasonable person in Dr. Goldfarb’s situation would have considered death “highly likely to occur” if he had proceeded up the mountain.

The court acknowledged that Dr. Goldfarb was “an experienced mountain climber in excellent physical condition.”  However, it concluded that, even with those characteristics in mind, “the known facts about his climb up Pastore Peak lead us to conclude that a reasonable mountain climber would have recognized a high likelihood of injury or death.”

The court stressed that Dr. Goldfarb had been warned by Szlanko about the dangerousness of the route, that he had traveled alone with a limited cache of supplies, and that he had not only followed the route that Szlanko had determined was too risky, but had pushed on even further where conditions were worse.

The court admitted that insurers face “a high bar” in cases like this one, and that another decisionmaker might arrive at a different conclusion. However, under deferential review the court stated that it could not declare that Reliance Standard’s decision was “unsupported by reasonable grounds,” and thus upheld it.

In doing so, the court rejected the Goldfarb brothers’ arguments, which mostly revolved around the burden of proof. The brothers argued that the burden was on Reliance Standard to prove that Dr. Goldfarb’s death was not an accident because Reliance Standard had conceded that the death was not a suicide, the cause of death was inconclusive, and there was no mountain-climbing exclusion in the benefit plan. However, the court ruled that the burden remained with the brothers at all times, as they were the claimants and plaintiffs in the case. Furthermore, because Reliance Standard did not rely on an exclusion to deny their claim, the burden did not shift to Reliance Standard.

Finally, the Eleventh Circuit considered Reliance Standard’s conflict of interest. The court acknowledged that a structural conflict existed because Reliance Standard both evaluated and paid claims. However, “[t]he Goldfarbs have offered no evidence suggesting that Reliance Standard’s structural conflict of interest had significant inherent or case-specific importance. Nor have they provided any evidence that the conflict influenced Reliance Standard’s denial of their claim.” As a result, the court ruled that this minimal evidence of conflict of interest did not justify overturning Reliance Standard’s decision.

In short, the Eleventh Circuit determined that Dr. Goldfarb’s mountain-climbing accident was not actually an “accident” at all. Thus, it reversed the district court and remanded with instructions to enter judgment in Reliance Standard’s favor. Meanwhile, the Serbonian Bog claims yet more victims.

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

Breach of Fiduciary Duty

Second Circuit

Kistler v. Stanley Black & Decker Inc., No. 3:22-cv-966 (SRU), 2024 WL 3292543 (D. Conn. Jul. 3, 2024) (Judge Stefan R. Underhill). Two participants of the Stanley Black & Decker Retirement Account Plan commenced this action on behalf of a putative class of participants and beneficiaries against Stanley Black & Decker, Inc. and the plan’s committee for breaching their fiduciary duties under ERISA. Plaintiffs asserted claims challenging the plan’s excessive recordkeeping and administrative costs as well as the plan’s investment in a suite of underperforming target date funds. Specifically, plaintiffs challenge the selection and retention of the BlackRock LifePath Index Funds, which were designated as the plan’s qualified default investments and the index in which 39% of the plan’s assets were invested. They allege that a prudent fiduciary would have kept a close watch on these target date funds, and had defendants done so they would have seen sustained underperformance for years on end. “Despite what the plaintiffs contend is obvious underperformance, the plaintiffs allege that the ‘minutes of meetings of the Committee from March 27, 2017 through September 27, 2022 do not reflect a single instance where the Committee so much as independently discussed the performance woes of the BlackRock TDFs.” And with regard to the recordkeeping and administrative fees, plaintiffs allege that the plan paid nearly twice as much per participant when compared to plans of similar or even smaller sizes. Plaintiffs claim these high fees were the result of a deficient process contracting recordkeeping services, and highlighted that throughout the relevant period defendants did not conduct any competitive bidding or any investigation into the appropriateness of the fees “apart from a singular, flawed benchmarking study in 2022,” wherein it failed to compare the recordkeeping fees to those paid by other plans with a similar number of participants. Accordingly, plaintiffs argued that defendants’ actions resulted in participants being overcharged for recordkeeping and administrative services, resulting in the loss of millions of dollars in their retirement savings. Stanley Black & Decker moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). The motion was denied in this decision. To begin, the court was satisfied that plaintiffs alleged that they were participants in the plan, who invested in at least one of the challenged target date funds, and who were harmed by the allegedly costly fees. Thus, at the pleading stage, the court concluded that plaintiffs established standing to bring all of their claims. In addition, the court found that plaintiffs sufficiently stated claims upon which relief can be granted, concluding they met “the pleading standards established in Twombly and Iqbal.” The court stated that it would “defer deciding the question of whether two funds are proper comparators until after discovery,” and that for now plaintiffs’ complaint offers enough factual material to establish the plausibility of its claims. “Considering their allegations in totality, the plaintiffs have plausibly alleged the adequacy of their comparators sufficient for this stage of the litigation.” The court further concluded that plaintiffs told a plausible narrative of an imprudent monitoring process. The sole exception to the ruling favoring plaintiffs regarded their duty of loyalty claim. The court emphasized that plaintiffs did not allege facts that supported an inference of self-dealing or that the fiduciaries acted in the interest of anyone other than the participants and beneficiaries. Thus, to the extent plaintiffs alleged that defendants breached their duty of loyalty, that claim was dismissed. However, beyond the disloyalty claim, the court denied the motion to dismiss, and allowed the plaintiffs to proceed.

Sixth Circuit

Chelf v. Prudential Ins. Co. of Am., No. 3:17-CV-00736-GNS-RSE, 2024 WL 3246088 (W.D. Ky. Jun. 27, 2024) (Judge Greg N. Stivers). Widow Ruth Mae Chelf commenced this fiduciary breach litigation to challenge the actions of defendants Wal-Mart Associates, Inc. and the Administrative Committee for the Associates’ Health and Welfare Plan which allegedly resulted in unpaid life insurance premiums, causing Ms. Chelf to lose optional life insurance benefits she otherwise would have received following her husband’s death. Ms. Chelf alleged that defendants improperly deducted excess premiums from her husband’s disability benefits, failed to apply paid time off to his past-due optional life insurance premiums, failed to inform the family that premiums were past due, and failed to let them know the optional life insurance plan had been terminated and that the family could convert optional life insurance to an individual policy. Defendants filed a motion to dismiss, which the court granted. Ms. Chelf appealed, and the Sixth Circuit reversed most of the district court’s dismissal, affirming only to the extent the dismissal was based on defendants’ failure to inform the family of conversion rights. Now the parties have filed cross-motions for summary judgment. In addition, Ms. Chelf moved to strike one of defendants’ declarations. The court denied the motion to strike, concluding that the challenged declaration was unnecessary and immaterial to its resolution of the motions, which was in favor of defendants. The court found: (1) there was no error with defendants’ short-term disability premium deductions; (2) although defendants improperly deduced $5.80 in premium payments under the long-term disability policy, this error did not in and of itself result in the family’s loss of optional life insurance coverage; (3) evidence did not support the conclusion that defendants’ actions regarding paid time off were improper; and (4) defendants did not breach any fiduciary duty by failing to disclose information to the family because they had not provided any false, inaccurate, or misleading answers in response to the family’s questions. Accordingly, the court concluded that defendants had not breached their fiduciary duties and therefore entered judgment in their favor.

Seventh Circuit

Remied v. NorthShore Univ. Health Sys., No. 22-cv-2578, 2024 WL 3251331 (N.D. Ill. Jul. 1, 2024) (Judge Steven C. Seeger). In this putative class action, plaintiff Jamison Remied, a participant in the NorthShore University HealthSystem Tax Deferred Annuity 403(b) Plan, alleges that the plan’s fiduciaries breached their duties of prudence and monitoring imposed by ERISA by paying excessive fees for recordkeeping services and selecting high-cost funds as the plan’s investment options. In the operative complaint Mr. Remied alleges that NorthShore University HealthSystem, its CEO, and the plan’s administrative and investment committees failed to leverage the large size of the plan (with nearly 12,000 participants and almost $1.8 billion in assets) to reduce recordkeeping costs. As alleged, the plan paid $107 per participant annually to its recordkeeper, Voya, which in percentage terms was a fee rate of 0.0772% of its assets. The complaint stated that “[u]nder either comparison model, Defendants could have offered the exact same RKA services, at the same level and quality, at a more reasonable cost by using a different recordkeeper but did not do so.” Additionally, the complaint asserts that the plan imprudently selected higher expense ratios when nearly identical, cheaper funds existed. Finally, Mr. Remied contends that NorthShore University HealthSystem and the company’s CEO did not live up to their duty to monitor the committees. Defendants moved to dismiss the complaint for failure to state a claim. In this decision the court granted in part and denied in part defendants’ motion. Beginning with the recordkeeping fee allegations, the court concluded that Mr. Remied “pleaded enough factual content to plausibly allege that a prudent fiduciary would have taken steps to reduce fees.” Given the complaint’s detailed and “granular” allegations about the recordkeeping fees paid by this plan and by the seven comparator plans, as well as the fact that “Remied alleged that recordkeeping services are like a commodity, and that all service providers provide a similar quality of service,” the court concluded that the complaint was “more similar to the complaint in Hughes II (surviving a motion to dismiss) than the complaint in Albert (which did not).” Accordingly, the motion to dismiss the fiduciary breach claims premised on excessive recordkeeping fees was denied. However, the court reached a different conclusion with regard to the high-cost investment option claims. There, it found that the complaint contained little more than a “raw allegation that the other investments have the ‘same investment approach and similar investment histories,’” and that this alone wasn’t “good enough” to survive defendants’ challenge. As currently alleged, the court concluded that the complaint failed to make “apples to apples” comparisons, and implied that it would not endorse the broad assumption that cheaper equates to better, emphasizing that ERISA doesn’t require fiduciaries to select the cheapest available fund. Therefore, the court found that the complaint failed to provide a sound basis for comparison for its expense ratio claims and thus granted the motion to dismiss them.

Ninth Circuit

Phillips v. Cobham Advanced Elec. Sols., No. 23-cv-03785-EJD, 2024 WL 3228097 (N.D. Cal. Jun. 28, 2024) (Judge Edward J. Davila). Three participants of the Cobham Advanced Electronic Solutions, Inc. (CAES) 401(k) Plan commenced this action on behalf of a potential class alleging CAES, its board, and the plan’s committee are violating their fiduciary duties under ERISA. In count one of their complaint, plaintiffs allege that the committee violated its fiduciary duty of prudence by engaging in a failed process selecting and overseeing funds which saddled the plan and its participants with a suite of chronically underperforming target date funds that needlessly deprived the participants of millions of dollars in retirement savings. In count two, plaintiffs assert a derivative claim against the company and its board for failing to monitor the committee. Defendants moved to dismiss both causes of action pursuant to Federal Rules of Civil Procedure 12(b)(1) and (b)(6). Their motion was granted, without prejudice, in this decision. To begin, the court disagreed with defendants’ position that plaintiffs had a problem with Article III standing. To the contrary, the court found that plaintiffs each sufficiently alleged that they participated and invested in at least one of the challenged target date funds and that they suffered injury to their accounts by way of the high costs and low returns. “The Court finds that these allegations sufficiently demonstrate individualized injury for Article III standing.” With the threshold question of standing resolved, the court turned to defendants’ arguments challenging the sufficiency of the stated fiduciary breach claims, and concluded that the complaint as currently alleged has some problems. Chief among these was that plaintiffs alleged only that the target date funds performed poorly, “which may not be the basis for an ERISA claim for imprudence.” The court cautioned plaintiffs that what they were characterizing as allegations of process flaws were in fact “mere restatements of…underperformance.” “Plaintiffs do not point to any process failure allegations beyond the conclusory and circular statement that ‘Defendants did not engage in a prudent process in evaluating the investment management fees and the prudence of the Plan’s funds,’ as evidenced by the poor performance of the funds.” Even the sheer length and extent of the alleged underperformance, the court held, is not enough without more to state a plausible claim that the fiduciaries acted imprudently. Accordingly, the court dismissed both of plaintiffs’ claims. However, the court said it did not find amendment futile, and therefore granted the motion to dismiss without prejudice so that plaintiffs may address their complaint’s shortcomings with an amended pleading.

Disability Benefit Claims

Seventh Circuit

Slaughter v. Hartford Life & Accident Ins. Co., No. 22 CV 5787, 2024 WL 3251371 (N.D. Ill. Jul. 1, 2024) (Judge Jeremy C. Daniel). On August 27, 2020, plaintiff Kenneth Slaughter, a cybersecurity systems engineer at Boeing, was taken to the emergency room complaining of chest pain and shortness of breath. He was admitted to the hospital after an echocardiogram resulted in a finding of “VERY SEVERE left ventricular systolic dysfunction.” On September 1, Mr. Slaughter underwent surgery. The procedure improved Mr. Slaughter’s condition somewhat, although his heart remained weak and was still not pumping blood anywhere near as well as a healthy person’s. By September 4, Mr. Slaughter was discharged from the hospital. However, as is often the case in these types of situations, several things started to go wrong at once with Mr. Slaughter’s health. In addition to his heart condition, Mr. Slaughter simultaneously experienced the onset of sleep disorders, gastrointestinal problems, anxiety, and dizziness, as well as a reduced ability to focus, concentrate, and think deeply. Unwell, Mr. Slaughter stopped working and applied for disability benefits. In this Section 502(a)(1)(B) ERISA action, Mr. Slaughter appeals Hartford Life & Accident Insurance Company’s decision to deny his application for long-term disability benefits. Mr. Slaughter maintains that he is unable to perform his own occupation as a systems engineer because of his ongoing health issues. In this decision the court issued its final judgment. Mr. Slaughter styled his motion as one for summary judgment under Federal Rule of Civil Procedure 56, while Hartford had moved for judgment on the administrative record under Rule 52. As a preliminary matter, the court determined that Rule 52 was the appropriate mechanism for resolution of the case, and thus treated both parties’ motions as motions for judgment. The court also clarified that the plan does not grant discretionary authority, making the de novo standard of review applicable. Unfortunately for Mr. Slaughter, the court’s fresh eyes did not result in a favorable decision. Ultimately, the court concluded that he could not satisfy his burden of proving entitlement to disability benefits under the plan and that he separately failed to establish he was under the regular care of physicians for the duration of the benefit period. As to the former, the court stated that “the total mix of facts in [this] particular case,” including Mr. Slaughter’s vocational evaluation, his independent medical evaluation, the award of Social Security disability benefits, and the totality of the medical records, simply did not add up to establish entitlement to benefits. The court spent time independently explaining why each factor was not dispositive. And regarding the latter, the court was not convinced based on the documents within the administrative record that Mr. Slaughter was under the regular care of a physician beyond January 26, 2021. As continuity of care was required under the plan, the court determined that the insufficient evidence of continued and ongoing medical care provided separate grounds to affirm the denial. Accordingly, the court entered judgment in favor of Hartford.

ERISA Preemption

Seventh Circuit

Mercy Hospital of Folsom v. Health Care Service Corp., No. 24 CV 2749, 2024 WL 3275509 (N.D. Ill. Jul. 2, 2024) (Judge Lindsay C. Jenkins). Plaintiff Mercy Hospital of Folsom has sued Health Care Service Corporation in Illinois state court for failing to adequately compensate it for medical services it provided to eight patients with healthcare plans sponsored by Health Care Service Corp. Defendant removed the action, arguing federal question and supplemental jurisdiction exists because one of the patients (Patient No. 5) has a health plan governed by ERISA and ERISA preempts the state law causes of action. Mercy Hospital moved to remand. The court denied the motion to remand with respect to the claim involving Patient No. 5, but declined to exercise supplemental jurisdiction over the claims related to the seven remaining patients and the disputes involving them. As for the patient insured under the ERISA plan, the court evaluated Mercy Hospital’s claims under the two-prong Davila preemption test. First, the court concluded that Mercy Hospital had a valid assignment of benefits from the patient and that it could bring a cause of action under ERISA Section 502. Second, the court stated that because the insurance company refused to pay for any treatment Mercy Hospital provided to Patient No. 5 on the basis that it was not medically necessary, this action was one implicating the “right to payment” as opposed to a “rate of payment” dispute. “In this case, the only way to determine whether HCSC is required to pay Mercy for the treatment it provided the Patient is to analyze whether the treatments were Medically Necessary as that term is defined in the ERISA plan. Put differently, ‘whether [Mercy] is entitled to damages depends on what benefits and payments are owned under the relevant ERISA plans.’” Thus, the court found that this case was fundamentally about failure to pay medical benefits under a healthcare plan. This is “precisely” what ERISA Section 502(a) covers, meaning no other independent legal duty was implicated and ERISA completely preempts Mercy Hospital’s action. Nonetheless, the court declined to exercise supplemental jurisdiction, as it did not feel that Mercy Hospital’s claims relating to the seven other patients was in any way relevant to the resolution of Patient No. 5’s ERISA claim. As a result, the motion to remand was granted in part and denied in part, and Mercy Hospital was ordered to file an amended complaint asserting causes of action under ERISA pertaining to Patient No. 5.

Exhaustion of Administrative Remedies

Eleventh Circuit

Molla v. Gerdau Ameristeel, U.S., Inc., No. 8:22-cv-2094-VMC-SPF, 2024 WL 3277101 (M.D. Fla. Jul. 2, 2024) (Judge Virginia M. Hernandez Covington). A participant of the Gerdau Ameristeel U.S. 401(k) Retirement Plan, plaintiff Grant Molla, filed this suit on behalf of himself, the plan, and a putative class of similarly situated individuals against the company and the benefits plan administrative committee. Mr. Molla contends that defendants breached their fiduciary duties under ERISA Sections 409 and 502 by mismanaging the plan, causing it to pay unreasonable and excessive recordkeeping and administrative fees. After the complaint was filed, the parties jointly agreed to stay the proceedings pending exhaustion of administrative remedies. Defendants considered and denied Mr. Molla’s claim and upheld the denial on appeal. When they were through with the exhaustion exercise, the parties jointly moved to lift the stay. The court granted the motion and reopened the case. Defendants then filed the instant motion to dismiss. Their motion was premised on a single argument – the complaint must be dismissed because it does not allege that Mr. Molla exhausted his administrative remedies or that his claim was denied. In this decision the court agreed with defendants and granted their motion, but did so without prejudice so that Mr. Molla may simply amend his complaint to plead exhaustion of administrative remedies. The fact that the parties do not dispute that Mr. Molla exhausted his administrative remedies made the decision a little odd, particularly as this is not a benefits action but a plan-wide fiduciary breach case. Nevertheless, the court stressed the Eleventh Circuit’s long-standing requirement that ERISA plaintiffs plead that they have exhausted administrative remedies “before pursuing a claim for either benefits under ERISA or statutory violations of ERISA, unless use of the administrative claims procedures would be futile.” While the court acknowledged that it could not find “caselaw that explicitly addresses whether a plaintiff must amend their complaint to plead exhaustion of administrative remedies in this situation,” it was nevertheless convinced that a plaintiff in an ERISA action must still plead exhaustion of administrative remedies even if it is a fact that the parties do not dispute. Thus, the court is requiring Mr. Molla to file an amended complaint that pleads he exhausted the administrative appeals process in order to proceed with his action.

Pleading Issues & Procedure

Third Circuit

James v. McManus, No. 24-2232, 2024 WL 3238131 (E.D. Pa. Jun. 27, 2024) (Judge Mark A. Kearney). Several years ago, plaintiff Mojirade James obtained a judgment from a jury in Philadelphia, Pennsylvania against defendant Ginette McManus for failing to disclose structural defects in a home Ms. James bought from Ms. McManus. Ms. James then sued Ms. McManus, as well as Baxter Credit Union, Citadel Credit Union, Lincoln Investment, and Teachers Insurance and Annuity Association in the Montgomery County Court of Common Pleas for violations of Pennsylvania’s Uniform Voidable Transactions Act, conversion, and unjust enrichment, seeking to collect on her judgment won in the earlier action. Ms. James claims that Ms. McManus is fraudulently transferring funds subject to the judgment to retirement and pension accounts to make herself appear insolvent and avoid paying. In addition, Ms. James alleges that “the financial institutions converted the money when it accepted Ms. McManus’s funds.” Defendants removed the action to federal court, arguing that ERISA preempts the state law claims. Ms. James responded by moving to remand, and for sanctions and attorneys’ fees. She believes defendants lacked an objectively reasonable basis for removal. Defendants conceded that complete preemption does not apply, but nevertheless maintain that the action is properly before the federal district court because of the “arising under” federal law basis for subject matter jurisdiction. They argue that Ms. James’s state law causes of action cannot be resolved without the court considering ERISA’s anti-alienation provision. In this order the court concluded defendants failed to meet their heavy burden of satisfying the court’s subject matter jurisdiction, which is “reserved for a special and small category of cases ‘arising under’ federal law. Ms. James’s state law claims do not require us to resolve significant federal issues creating ‘arising under’ jurisdiction.” The court stated that it does not need to consult ERISA’s anti-alienation provision to define the term “asset” under Pennsylvania’s Uniform Voidable Transactions Act. Although the court agreed with defendants that Ms. James will have to prove the transfer of assets, it disagreed that a federal question is necessarily raised because of this. “Ms. James appears to be claiming a transfer of available assets under Pennsylvania law to an ERISA plan. The question is whether those funds allegedly transferred to exempt plans are subject to execution under Pennsylvania law mindful federal law bars collection of assets in ERISA plans managed by Lincoln Investment and Teachers Insurance. This issue does not arise under federal law.” Thus, the court concluded defendants did not meet their burden of establishing jurisdiction, and stressed that any uncertainty should be resolved in favor of remand. Ms. James’s motion to remand her action back to state court was accordingly granted. However, the court denied her motion to sanction defendants for their removal, finding that defendants removed the action based on fairly presented arguments that the state law claims arise under federal law. The court emphasized that the parties’ dispute over federal jurisdiction was complex and difficult.

Withdrawal Liability & Unpaid Contributions

Seventh Circuit

Painters District Council #58 v. Plant Maintenance Services, LLC, No. 3:24-CV-00697-SPM, 2024 WL 3273290 (S.D. Ill. Jul. 2, 2024) (Judge Stephen P. McGlynn). A union, Painters District Council #58, and an employee welfare benefit plan, the Illinois State Painters Welfare Fund, brought this action pursuant to ERISA seeking damages from defendant Plant Maintenance Services, Inc. for audit liability, liquidated damages, pre-judgment and post-judgment interest, audit costs, and attorneys’ fees and costs. During the audit, the auditor discovered that Plant Maintenance Services made overpayments to the fund in the amount of $132,577.51 and that the fund did not give any credit to the employer for the overpayments nor did it offer a refund. ERISA Section 403(c)(2)(A)(ii) states that it “shall not prohibit the return of [contributions or payment made by an employer to a multiemployer plan by a mistake] to the employer within 6 months after the plan administrator determines that the contribution was made by such a mistake.” After learning of the mistaken overpayments through the audit, the employer asserted a counterclaim, arguing it is entitled to either a credit from the fund for its overpayment or a refund in the amount of the overpayments. Plaintiffs moved to dismiss the counterclaim. They argued that ERISA does not require them to automatically refund overpaid contributions because Section 403(c)(2)(A)(ii) “merely allows the Funds to do so when the Funds determine a refund to be appropriate.” It is their position that ERISA requires employers to monitor contribution payments and to timely request a refund when appropriate. They maintain that Plant Maintenance Services is attempting to shift the responsibility on them resulting in a counterclaim “which is not cognizable, and therefore must be dismissed.” They further highlighted that the six-month window in Section 403(c)(2)(A)(ii) has passed, requiring dismissal of the counterclaim. The court disagreed with plaintiffs, and signaled some sympathy for the employer. Quoting from a 1993 Seventh Circuit decision, UIU Severance Pay Trust Fund v. Local Union No. 18-U, United Steelworkers, the court stated, “absent a judicially-crafted cause of action, employers are left to the mercy of plan trustees who have no financial incentive to return mistaken payments. Employers are already penalized for failing to make required contributions.” In UIU Severance Pay Trust Fund the Seventh Circuit established a “federal common law cause of action…to ‘effectuate the statutory pattern enacted in the large by Congress.’” Relying on this, the court held that while Section 403(c)(2)(A)(ii) does not itself establish a cause of action for restitution of overpayments, Plant Maintenance Services nevertheless stated a claim for restitution under federal common law. This remained true, the court said, despite the fact that the employer did not request a refund within the six-month window. However, the court did note that it will be the employer’s burden “to prove that their restitution claim comports with the four factors discussed by the Seventh Circuit.” These four factors are: (1) are the contributions the sort of mistaken payments that equity demands be refunded; (2) has the employer delayed in bringing its claim for so long that equitable defenses bar recovery; (3) has the employer by continuing payments somehow ratified past payments; and (4) can the employer demonstrate that the fund would be unjustly enriched if recovery were denied? For now, though, the court noted that consideration of the four-factor test for restitution under UIU Severance Pay Trust Fund was premature at this stage. Plaintiffs’ motion to dismiss the counterclaim was thus denied.