It was another light week at Your ERISA Watch. Perhaps the courts are exhausted as the year winds down. And speaking of exhaustion, that peculiar ERISA topic rears its head in several interesting decisions this week, so read on to learn more about this and other ERISA developments.

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

Arbitration

Sixth Circuit

Parker v. Tenneco Inc., No. 23-cv-10816, 2024 WL 5004326 (E.D. Mich. Dec. 6, 2024) (Magistrate Judge Kimberly G. Altman). In this putative class action, participants of the DRiV 401(k) Retirement Savings Plan and the Tenneco 401(k) Investment Plan seek to hold the plans’ fiduciaries responsible for allegedly breaching their duties under ERISA. The defendants previously moved to compel individual arbitration, but the court denied their motion and the Sixth Circuit affirmed the denial of defendants’ motion to compel individual arbitration. Defendants have since filed a petition for writ of certiorari with the United States Supreme Court, and now move to stay the case and discovery pending the Supreme Court’s ruling on their petition. In this decision, the district court denied these motions to stay. Defendants, the court concluded, could not demonstrate that there is a reasonable likelihood the Supreme Court will grant certiorari, and even if it were to do so, that it would reverse the decision of the Sixth Circuit. Nor could defendants show that they would face irreparable harm without a stay. On the likelihood of certiorari being granted, the court was unconvinced that there is a circuit split over the application of the effective vindication doctrine in ERISA plans. At the very least, the court noted that the majority of circuit courts, including the Second, Third, Sixth, and Tenth, are in lock-step. “In trying to demonstrate the existence of a split, Defendants point to an unpublished Ninth Circuit memorandum opinion, Dorman v. Charles Schwab Corp., 780 Fed.Appx. 510 (9th Cir. 2019), and a Seventh Circuit ruling stating that while ERISA claims may be arbitrable in general ‘the ‘effective vindication’ exception bar[red] application of the plan’s arbitration provision’ to the plaintiff’s ERISA claims.” To the court, this was insufficient evidence to demonstrate that a circuit split exists such that the Supreme Court is likely to grant their petition for certiorari. In fact, the court noted that the Supreme Court has denied three similar petitions already, “even after the issuance of the Seventh and Ninth Circuit opinions cited by Defendants.” Moreover, the court was seemingly unmoved by defendants’ attempt to distinguish their cert petition from the earlier failed ones by arguing that the Supreme Court will be friendlier to arguments rejecting the application of the effective vindication doctrine because of its decision in Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024). The court pointed out “that a petition for certiorari has been denied following the issuance of Loper Bright in June 2024.” The court was therefore unconvinced that the fiduciaries here will fare better with their own petition. But even if they should, the court was quick to note that defendants fail to establish that they will be harmed or unduly burdened absent a stay. Accordingly, the court denied both of defendants’ motions – (1) to stay the case pending order on petition for writ of certiorari, and (2) to stay discovery pending a ruling on defendants’ “garden-variety Rule 12(b)(6) motion” to dismiss plaintiffs’ amended complaint.

Attorneys’ Fees

Second Circuit

Mundell v. Natsios-Mundell, No. 24-cv-2800 (JSR), 2024 WL 4979295 (S.D.N.Y. Dec. 3, 2024) (Judge Jed S. Rakoff). The family of the late Nobel Prize-winning economist Dr. Robert Mundell dispute the beneficiary designation of Dr. Mundell’s $4 million retirement account. His children and grandchildren allege that his widow fraudulently logged onto her husband’s online portal to change his designated beneficiary from his four children to name herself the sole beneficiary. The children and grandchildren sued the widow in state court to hold her liable for the alleged fraud. The widow then removed the action to federal court, arguing the family’s dispute was preempted by ERISA. Ultimately, the court disagreed, and on October 8, 2024, it issued a decision granting the plaintiffs’ motion to remand their action back to state court. (You can read our summary of that decision in Your ERISA Watch’s October 16, 2024 edition.) Plaintiffs now move for attorneys’ fees under the removal provision, 28 U.S.C. § 1447(c), for the costs they incurred from defendant’s removal. The court denied their motion in this decision, finding that the removal was objectively reasonable given the complexity of ERISA preemption. “Although plaintiffs accurately observe that governing law clearly foreclosed diversity jurisdiction as a basis for defendant’s removal, defendant’s argument that complete preemption under ERISA supplied federal-question jurisdiction presented a close call.” Simply, the court stated that although its bottom-line outcome came out in plaintiff’s favor, this result nevertheless does not provide a basis for an award of attorneys’ fees. Furthermore, the court noted that its position declining to award attorneys’ fees aligns with many other decisions addressing the same issue. Thus, plaintiffs were not awarded any fees to compensate them for the removal.

Class Actions

Fourth Circuit

Leon v. Maersk Inc., No. 3:23-cv-00602-RJC-SCR, 2024 WL 4942394 (W.D.N.C. Dec. 2, 2024) (Judge Robert J. Conrad, Jr.). Participants of the Maersk Inc. retirement plan moved unopposed for final approval of class action settlement and for attorneys’ fees, costs, administrative expenses, and a case contribution award in this breach of fiduciary duty action alleging the fiduciaries mismanaged the plan by saddling it with excessive administrative fees and recordkeeping expenses. In a very succinct order, the court granted plaintiffs’ motions, concluding that the $225,000 settlement of the class action was fair, reasonable, and adequate to the plan and the class and the result of informed, good-faith, and arms-length negotiations. The court also briefly reiterated a prior finding that the settlement for the class of participants and beneficiaries meets all of the requirements of Rule 23(a) and 23(b)(1). Moreover, the court approved the form and methods of notifying the class of the settlement. The court also noted that class members had the opportunity to voice any issues regarding the settlement and the release of claims relating to the settlement agreement and that there were no objections to the settlement or plan of allocation. Further, an independent fiduciary has reviewed the settlement and approved it, also concluding that it represents a fair and reasonable outcome for the parties. Accordingly, the court granted the motion for final approval of the settlement, and, pursuant to its terms, ordered defendants to conduct a request for proposal for plan recordkeeping services within three years following the settlement effective date. Although not discussed in any detail, the motion for attorneys’ fees, costs, expenses, and case contribution award were all granted as well pursuant to the terms of the settlement agreement. Thus, the class action settlement was given final approval, plaintiffs released their claims, and the settlement administrator was granted final authority to delegate the share of the net settlement amount to each eligible plan participant as agreed to under the plan of allocation.

Disability Benefit Claims

Fifth Circuit

Black v. Unum Life Ins. Co. of Am., No. 3:22-CV-2116-X, 2024 WL 4960010 (N.D. Tex. Dec. 2, 2024) (Judge Brantley Starr). In 2014, plaintiff Catherine A. Black underwent surgery to remove her gallbladder. Unfortunately, she suffered complications from the surgery and was unable to return to work. Ms. Black submitted a claim for disability benefits under a policy administered and insured by defendant Unum Life Insurance Company of America. Unum approved the claim. Years passed and Ms. Black was diagnosed with thoracic outlet syndrome and her symptoms persisted. In 2021, following more surgery, Ms. Black’s health began to improve. Her own doctors even cleared her to perform sedentary work. In response to this, Unum terminated Ms. Black’s disability benefits. She protested and appealed Unum’s decision, arguing her pain remained debilitating. Nevertheless, Unum affirmed its decision on appeal based on the conclusions of its reviewing nurse. Ms. Black once again requested Unum reconsider its position, and when it declined to, she filed this ERISA action. At the summary judgment stage, the court agreed with Ms. Black that Unum failed to provide her claim with a full and fair review as required under the statute. “The Court’s opinion ruled that Unum denied coverage based on medical judgment and in doing so, ‘did not meet ERISA’s procedural requirements for two reasons: (1) Nurse Abbot’s review essentially gave deference to the initial denial of Black’s claim; and (2) Nurse Abbot was not a qualified health care professional to perform the consultation.’” The court therefore granted Ms. Black’s motion for partial summary judgment and remanded the case back to Unum to conduct a new review of her claim in compliance with ERISA’s requirements. On remand, Unum consulted with a doctor of osteopathy and a vascular surgeon. Both reviewing doctors agreed that there were no clinical or diagnostic findings in Ms. Black’s medical record to support restrictions and limitations precluding her from performing sedentary occupational demands. Unum therefore denied Ms. Black’s claim again. In this decision, the court granted judgment on the record in favor of Unum on its determination post-remand. It found that the review substantially complied with ERISA’s statutory requirements because the insurer consulted with doctors who were “certainly qualified to conduct a review of Black’s medical records and form [opinions] on which Unum could rely.” More broadly, the court stated that it could not disturb Unum’s decision given that substantial evidence supports the denial, particularly as this case is unlike ones where the parties’ respective physicians disagree strongly on the plaintiff’s disability status. In this case, the court wrote the physicians “largely agree,” and Black’s own treating doctors cleared her for sedentary work as of September 17, 2021. The court therefore upheld the denial and entered judgment in favor of Unum.

Ninth Circuit

Gray v. United of Omaha Life Ins. Co., No. 24-700, __ F. App’x __, 2024 WL 5001915 (9th Cir. Dec. 6, 2024) (Before Circuit Judges Gould, Clifton, and Sanchez). Plaintiff-appellant Kandice Gray appealed a judgment from the district court in favor of defendant-appellee United of Omaha Life Insurance Company in this ERISA disability benefits action. Under de novo standard of review, the district court held that Ms. Gray failed to meet her burden of proof to demonstrate she was entitled to additional short-term disability or long-term disability benefits under the policy. On appeal, the Ninth Circuit agreed, finding no clear error in the district court’s decision. The court of appeals stressed that Ms. Gray only submitted four doctors’ appointment records to defendant while her claim was under review, and two of these doctors were not specialists in the relevant field of medicine for her disabling condition, lumbar radiculopathy. The Ninth Circuit wrote that these “medical findings are too thin and dependent on Gray’s subjective reporting to be given substantial weight.” Moreover, despite what the court of appeals categorized as “many opportunities to submit additional medical records while her claims were still under review,” Ms. Gray failed to include MRI results or respond to United’s “repeated reasonable requests for details.” The Ninth Circuit therefore agreed with the lower court that special circumstances did not exist here which would justify considering evidence that was not before United when it made its claim determination. Accordingly, the court of appeals affirmed the judgment in favor of United of Omaha.

Discovery

Third Circuit

Stallman v. First Unum Life Ins. Co., No. Civ. 23-20975 (JXN) (LDW), 2024 WL 4988603 (D.N.J. Dec. 5, 2024) (Magistrate Judge Leda Dunn Wettre). Plaintiff Jeremy Stallman filed this action against First Unum Life Insurance Company to challenge its denial of his claim for long-term disability benefits. Mr. Stallman moved for limited discovery related to his claim. The court broke Mr. Stallman’s discovery request into three sections: (1) administrative record discovery; (2) conflict of interest discovery; and (3) affirmative defenses discovery. The decision began with the discovery seeking to confirm the completeness of the administrative record produced by First Unum. In this category of discovery, Mr. Stallman sought his short-term disability claim file, First Unum’s claims manual and guidelines, and communications relating to his long-term disability claim. First Unum agreed to produce its claims manual and guidelines and the communications, mooting these requests, but argued vociferously against producing Mr. Stallman’s short-term disability claim file. First Unum contended that the short-term disability file should not be considered part of the administrative record because it was a separate and distinct file, not considered or relied upon with regard to the long-term disability claim given that the respective claims were based on wholly unrelated disabilities – a pelvic fracture in the first instance and depression and anxiety in the second. The court was persuaded by these arguments, and thus denied Mr. Stallman’s request for production of his short-term disability claim file. Furthermore, the court denied Mr. Stallman’s request for a 30(b)(6) deposition to confirm and ensure that First Unum included all internal and external communications regarding his long-term disability claim in the administrative record. The decision next turned to the conflict of interest discovery. As a preliminary matter, the court established that such discovery is only permissible when a plaintiff expresses a reasonable suspicion that a structural conflict of interest adversely affected the way his or her claim was handled. Mr. Stallman argued that he had a reasonable suspicion of misconduct in his case given First Unum’s longstanding history of unfair claim handling practices which resulted in a Regulatory Settlement Agreement with the Department of Labor in 2004, its general practices in the way it tracks and monitors claims, and the fact that First Unum granted his claim for short-term disability benefits but denied his claim for long-term disability benefits. None of these arguments were “especially persuasive” to the court. It was unconvinced that historical or general practices create a per se reasonable suspicion of misconduct affecting all benefit claims. And the court was skeptical that the denial of Mr. Stallman’s long-term disability benefit claim immediately after his approved short-term disability benefit claim was evidence of misconduct, as the two claims related to different disabilities. Nevertheless, despite the court’s view that Mr. Stallman failed to present much in the way of compelling evidence demonstrating a reasonable suspicion, it found it appropriate to permit Mr. Stallman “to serve one interrogatory addressed to whether the compensation or performance evaluations of First Unum’s claims and medical personnel involved in plaintiff’s LTD claim decision has been based, during relevant time periods, in any respect on the outcome of their claims determinations. In the Court’s view, this is the information that most directly bears on whether any bias stemming from the structural conflict actually may have influenced the outcome of the LTD claim.” In all other respects, Mr. Stallman’s “wide-ranging” conflict of interest requests were denied. Finally, the court denied Mr. Stallman’s merits discovery request into First Unum’s affirmative defenses, as it stated this type of discovery “is prohibited in abuse-of-discretion cases.” Thus, as described above, Mr. Stallman’s motion for discovery was granted in part and denied in part by the court.

Exhaustion of Administrative Remedies

Third Circuit

Murray v. United Healthcare Servs., No. 2:23-cv-02073 (BRM), 2024 WL 4986725 (D.N.J. Dec. 5, 2024) (Judge Brian R. Martinotti). Plaintiff Kathryn Murray alleges that, before undergoing two medically necessary breast reconstructive surgeries, her health insurance provider, defendant United Healthcare Services, Inc., made clear and definite promises to grant her a “gap exception” for her surgeries, essentially guaranteeing to cover the surgeries at the “in-network” benefit level because United lacked in-network physicians in her geographic location who could perform them. When all was said and done, though, United reimbursed the providers only about $6,500 for each of the two surgeries, leaving Ms. Murray with out-of-pocket expenses of $143,495.26 and $18,444.52 respectively. In this action Ms. Murray seeks the reimbursement she alleges she was promised by United. United moved to dismiss Ms. Murray’s complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). It argued that her sole cause of action under ERISA Section 502(a)(1)(B) must be dismissed because she failed to allege facts to demonstrate she exhausted administrative remedies available, and because her complaint fails to tie her claim for benefits to the specific terms of her healthcare plan. The court addressed both arguments. To begin, the court declined to dismiss the complaint for failure to exhaust administrative remedies, noting that defendant bears the burden to show failure to exhaust and that exhaustion is an affirmative defense, “not generally the basis for dismissal under Rule 12(b)(6).” The court stated it could not definitively conclude whether pursuing administrative remedies would have been futile for Ms. Murray and therefore rejected defendant’s arguments for dismissal based on failure to exhaust. Regardless, the court agreed with United that the complaint as currently pled fails to link the claim for benefits to the terms of the plan, stating, “[it] is unclear from the face of the [complaint]…what plan provisions entitle [plaintiff] to the full amount of $161,939.78 for the surgeries performed. Even when construing Plaintiff’s complaint in the light most favorable to her…it cannot be said that Defendant’s ‘clear and definite promises to Plaintiff to grant her a ‘gap exception’’ also include a promise to pay for Plaintiff’s surgeries. Instead, the plan terms indicate Defendant will pay only ‘Eligible Expenses’ incurred by ‘Covered Health Services received from an Out-of-Network provider as a result of an Emergency or as arranged by [United.]’” Stated differently, the court latched onto Ms. Murray’s apparent responsibility for any charges beyond the “Eligible Expenses,” suggesting that the plan terms seem to contradict Ms. Murray’s under-reimbursement allegations. Accordingly, the court agreed with United that the complaint is currently deficient. However, pursuant to the Third Circuit’s lenient precedent regarding leave to amend, the court allowed Ms. Murray to amend her complaint to provide additional factual content to cure this deficiency, and therefore denied United’s request that the complaint be dismissed with prejudice.

Sixth Circuit

Martinez v. Zepf Ctr., No. 3:24 CV 810, 2024 WL 4932502 (N.D. Ohio Dec. 2, 2024) (Judge James R. Knepp II). Plaintiff Henry Martinez filed this action seeking $6,000 in short-term disability benefits under a fully insured ERISA-governed plan offered by his former employer, defendant Zepf Center. Mr. Martinez stopped working following a cancer diagnosis in 2022. He originally filed this lawsuit in state court, but the action was removed by the employer. After transferring the case to federal court, the employer moved for summary judgment. Mr. Martinez failed to timely respond to defendant’s motion. In this decision the court granted the employer’s motion for summary judgment. Defendant argued, and the court agreed, that it was entitled to summary judgment on three bases: (1) Mr. Martinez cannot state an ERISA claim because he was a per diem employee and per diem employees were not eligible to participate in the short-term disability plan; (2) even if Mr. Martinez could show he was the type of employee entitled to coverage under the plan, Mr. Martinez never submitted a claim for benefits under the terms of the plan or provided written proof of disability, and the time to do so has expired under the plan’s timing requirements; and relatedly, (3) Mr. Martinez’s claim fails as a matter of law because he did not exhaust the administrative remedies provided by the plan before bringing a lawsuit.

Tenth Circuit

David P. v. United HealthCare Ins., No. 2:19-cv-00225-JNP, 2024 WL 4988990 (D. Utah Dec. 5, 2024) (Judge Jill N. Parrish). In ERISA-world, we sometimes get inured to the oddities and peculiarities which are part and parcel of our field of coverage. Two of the many strange, some may even argue absurd, conventions to which we have become accustomed are those of court-ordered “remands” to plan administrators and the judicially-crafted requirement that claimants exhaust all administrative remedies prior to commencing legal action. The court tackled these two topics in this unusual ruling intervening in defendant United Healthcare’s decision on remand of a family’s claims for coverage of the daughter’s mental and substance-use disorder treatment at two residential treatment centers. Plaintiffs filed their federal ERISA lawsuit to challenge United’s denial of their claims for benefits, arguing successfully that United acted arbitrarily and capriciously by entirely failing to consider the daughter’s substance use as an independent basis for coverage. For relief, the court awarded plaintiffs benefits outright. However, United appealed the district court’s order, and although the Tenth Circuit agreed with the lower court that the denial was an abuse of discretion, it nevertheless reversed the district court’s chosen remedy. The court of appeals directed the lower court to instead remand the claim back to United for further consideration. Here’s where things went awry. Rather than wait for the district court to issue a remand order, or move for the court to order one, the United Healthcare defendants took it upon themselves to reconsider the claim. Once again they denied the $175,000 in benefit claims, this time strengthening their denials by providing significantly more detailed explanations and addressing the substance abuse bases for the claims. In response to this, plaintiffs moved to reopen the case for the court to review the denial of their benefit claims on reconsideration. The United defendants, for their part, argued that the family needs to once again exhaust the internal appeals processes before the court may grant their motion to reopen. The court was of an entirely different opinion altogether. It concluded that the case was never closed and that United’s voluntary reconsideration of the claims “is without legal effect because it was not made pursuant to a remand order by this court,” answering the novel question: “what legal effect, if any, does Defendants’ second denial letter have absent a remand order from this court?” The court clarified that judicial remand orders to plan administrators are not merely ministerial exercises of formal protocol, but rather serve important and practical purposes, including setting guardrails on the specific issues which can be considered on remand and structuring the procedures that must be followed to ensure the parties’ respective rights and obligations. The court elaborated that “judicial remand orders set the scope and framework for remand and provide the court a yardstick against which to evaluate the insurer’s redeterminations if the plaintiffs move for judicial review again.” The court disagreed with defendants’ assertion that the court of appeals’ decision itself constituted a remand order. Undermining this position, the court stated, was the plain language of the Tenth Circuit’s opinion requiring “a remand order from this court.” Regardless, the court specified that even if it were to construe the Tenth Circuit’s opinion itself as ordering a remand to the defendants, which it did not, it was entirely unconvinced that plaintiffs would be required to pursue the multi-step administrative appeals process anew, as such a requirement would give the administrator additional opportunities “to course correct.” Thus, displeased with United’s self-start, the court nullified its redetermination and ordered plaintiffs’ claims be remanded to the insurance company with limitations. Among these court-ordered restraints was a court-placed restriction on the scope of what United may consider during remand. The court decisively disposed of defendants’ ability to evaluate the claims based on the substance abuse rationale on remand because they entirely ignored that basis during the initial determination process. The court permitted defendants only “an opportunity [on remand] to elaborate on the rationales previously raised and conveyed.” Additionally, the court set the timeframe for the remand process. It gave defendants 60 days to reevaluate the claims, and plaintiffs 60 days to respond and object, if so desired. Assuming plaintiffs do object, United then has one month to respond to the objection. Thus, the court essentially provided the parties a one-level internal appeal process. It specified that plaintiffs must exhaust this one-level appeal before they may return to the court for any further judicial intervention. Finally, the court stated that it retains jurisdiction over the case pending the outcome on remand. Having arrived at these conclusions, the court denied plaintiffs’ motion to reopen the case as premature.

Pleading Issues & Procedure

Seventh Circuit

Tran v. Veolia Util. Res., No. 1:24-cv-00121-HAB-SLC, 2024 WL 4930164 (N.D. Ind. Dec. 2, 2024) (Magistrate Judge Susan Collins). Plaintiff Hien Tran brought this action against Sun Life Assurance of Canada, Veolia Utility Resources LLC, and Lincoln Life Assurance Company of Boston seeking ERISA-governed life insurance benefits due to the death of her husband. In the alternative, Ms. Tran also asserted a breach of fiduciary duty claim against defendants. After the lawsuit was filed, Sun Life received a competing claim for the same benefits from the decedent’s former wife, Sally Ann Lombardo. In response to this, Sun Life has moved to join Ms. Lombardo as a new party to this matter. Additionally, Sun Life asked the court to bifurcate the benefit claim from the alternative breach of fiduciary duty claim. It argues that bifurcation of the two causes of action would promote judicial economy and avoid prejudice to the parties. The court addressed joinder first and agreed with Sun Life that the competing claims for benefits present a classic example of a case where a party could be prejudiced by a decision made in his or her absence and where the insurance company would be subject to a substantial risk of inconsistent judgments from multiple lawsuits. Furthermore, the court rejected Ms. Tran’s argument that joinder of Ms. Lombardo would be futile because her competing claim for the benefits lacks merit. The court stated that futility arguments about the inability of the plaintiff to prevail on the merits are not well suited to joinder analysis and arguments about futility only hold water if they refer to the inability to state a claim. Therefore, the court declined to prevent joinder of Ms. Lombardo’s claim based solely on arguments regarding the merits. Accordingly, the court granted Sun Life’s motion to join Ms. Lombardo. However, the court was not persuaded by Sun Life’s motion to bifurcate because “the Court does not foresee a scenario where separation of the two claims avoids prejudice to a party or promotes judicial economy.” Therefore, the court denied Sun Life’s motion for bifurcation of the claims in this case.

Provider Claims

Ninth Circuit

Cleanquest, LLC v. United Healthcare Ins. Co., No. 8:23-cv-00148-JWH-ADS, 2024 WL 4940540 (C.D. Cal. Dec. 2, 2024) (Judge John W. Holcomb). Plaintiff Cleanquest, LLC is a toxicology lab that provides testing services for substance abuse treatment facilities. Cleanquest is out-of-network with defendants UnitedHealthcare Insurance Company, United HealthCare Services, Inc, and United Behavioral Health. It alleges that United has stopped paying claims or is underpaying for Cleanquest’s medical services. In this action, the provider seeks payment for testing of 166 patients with plans insured by United. This action was originally brought in state court. The United defendants removed the action to federal court. Cleanquest has since amended its complaint to assert claims under ERISA Sections 502(a)(1)(B), 502(a)(2), 502(a)(3), and 1132(c), as well as three state law claims for implied contract, quantum meruit, and California’s unfair competition law. Defendants moved to dismiss the amended complaint. The court granted the motion in part and denied the motion in part in this order. To begin, the court found that the provider stated a viable claim for benefits under ERISA Section 502(a)(1)(B), as its amended complaint sufficiently pleads that United violated specific terms of the ERISA plans and plausibly alleges that defendants have misapplied plan terms and underpaid claims. Additionally, the court concluded that Cleanquest alleged it exhausted its administrative remedies prior to bringing its action. The motion to dismiss the ERISA benefit claim was therefore denied by the court. However, the court granted defendants’ motion to dismiss the Section 502(a)(2) claim as the court found it clear from the face of the complaint that this action is not brought on behalf of the healthcare plans, but plainly on behalf of the healthcare provider in its own capacity. Nevertheless, the court was not receptive to defendants’ arguments with regard to the Section 502(a)(3) claim. The court found it appropriate to leave this cause of action because it concluded Section 502(a)(1)(B) may not allow the court to appropriately remedy all of the provider’s harm given the fact that some of the plans at issue may be self-funded while others are fully insured. The court also allowed plaintiff to proceed with its claim for failure to provide requested plan documents. However, the court agreed with defendants that all of Cleanquest’s state law claims were expressly preempted by ERISA Section 514. The court concluded that these three causes of action were all premised on coverage and reimbursement under the terms of the plans rather than on independent obligations owed to the provider or promises of payment, and that they therefore could not be resolved without reference to the ERISA plans. Defendants’ motion was thus granted with respect to the three state law claims. Finally, the court clarified that the four causes of action it was dismissing were dismissed without leave to amend, as it concluded that amendment would be futile because no additional revisions could cure these deficiencies.

Last week was a slow one for the federal courts, as the steady drip of turkey-produced tryptophan prevented them from providing us with a full complement of the ERISA-related decisions we all know and love. As a result, there was no notable decision for us to recap. Nonetheless, a handful of brave judges and clerks heroically waded through the gravy-laden mashed potatoes and stuffing to issue a few orders, and in their honor we are reporting on those rulings below.

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

Arbitration

Second Circuit

Duke v. Luxottica U.S. Holdings Corp., No. 2:21-cv-6072 (NJC) (AYS), 2024 WL 4904509 (E.D.N.Y. Nov. 27, 2024) (Judge Nusrat J. Choudhury). Just over a year ago, Your ERISA Watch summarized this court’s decision dismissing in part and otherwise compelling arbitration of a putative class action alleging that fiduciaries of the Luxottica Group Pension Plan violated ERISA’s actuarial equivalence, anti-forfeiture, and joint and survivor annuity requirements. In that order, the court dismissed plaintiff Janet Duke’s Section 409 and 502(a)(2) claims on behalf of the plan for lack of Article III standing, and compelled arbitration of Ms. Duke’s Section 502(a)(3) claims. Because the court dismissed the Section 409 and 502(a)(2) claims, it did not address plaintiff’s argument that the arbitration agreement’s class action waiver was unenforceable under the “effective vindication” doctrine because it takes away certain statutory rights (a topic Your ERISA Watch has covered regularly). Finally, the court’s order last year stayed the case pending arbitration. Two things have happened since then. First, after the case was assigned to a new judge, plaintiff moved for reconsideration of the prior ruling. The new judge granted her motion in part. To begin, the court granted reconsideration of last year’s order dismissing plaintiff’s Section 502(a)(2) and 409 claims on behalf of the plan for plan-wide remedies. The court held that the complaint plausibly alleges that Ms. Duke suffers from a concrete and particularized injury in the form of lower joint and survivor annuity payments stemming from the alleged use of outdated actuarial assumptions and calculations. Moreover, the court found that these same allegations concerning defendants’ actuarial conduct applied to the wider class, causing losses to the plan as a whole. Judicial recourse, the court found, would also remedy and redress these alleged injuries to both the plan and Ms. Duke. The court identified three errors in the previous ruling: (1) the previous order incorrectly reasoned that the complaint failed to allege how defendants’ conduct caused any losses to the plan or how to remedy them; (2) the order overlooked the complaint’s request for specific forms of plan-wide equitable relief to remedy the alleged harms; and (3) the order incorrectly interpreted the Supreme Court’s decision in Thole v. U.S. Bank and misunderstood the distinctions between this case and Thole, equating them for no other reason than they both involve defined benefit pension plans. However, the decision did not grant plaintiff’s motion in its entirety. The court denied reconsideration of last year’s decision’s grant of defendants’ motion to compel arbitration of the Section 502(a)(3) claims. It rejected Ms. Duke’s assertion that the previous order erroneously required her to administratively exhaust her Section 502(a)(3) claims before bringing them in federal court. The court found no clear error or manifest injustice in the previous ruling compelling Ms. Duke to arbitrate her individual Section 502(a)(3) claims, and therefore upheld that portion of the order. Next, the court addressed an issue not taken up in the previous decision, whether the arbitration provision could be enforced with respect to the representative plan-wide claims asserted under ERISA Section 502(a)(2). Here, the court was persuaded that it could not, as Ms. Duke’s arbitration agreement with Luxottica bars class and representative actions and therefore requires her to forego her statutory rights under Sections 409 and 502(a)(2) to bring representative claims on behalf of the plan and to seek plan-wide remedies for these alleged harms. The court held that the class action waiver was “squarely contrary to Second Circuit precedent prohibiting arbitration provisions that fail to permit individuals to pursue statutory rights, including the right to bring representative claims and secure Plan-wide relief under Sections 409 and 502(a)(2).” The court therefore agreed with plaintiff that the arbitration provision was unenforceable as to the plan-wide causes of action. Notably, the court did not reach Ms. Duke’s arguments as to the enforceability of the class action waiver with respect to her Section 502(a)(3) claims “because she did not timely raise them in the Motion for Reconsideration.” Finally, the court denied defendants’ request to stay adjudication of the plan-wide claims pending the arbitration of the Section 502(a)(3) claims “because Defendants fail to argue, much less demonstrate, that they have met their heavy burden to secure such a stay.” Thus, while Ms. Duke pursues her Section 502(a)(3) claims in arbitration on an individual basis, the plan-wide claims will proceed concurrently in federal court.

Attorneys’ Fees

Ninth Circuit

Downes v. Unum Life Ins. Co. of Am., No. 23-cv-01643-RS, 2024 WL 4876940 (N.D. Cal. Nov. 20, 2024) (Judge Richard Seeborg). After securing a judgment in her favor of her ERISA claim against defendant Unum Life Insurance Company of America in this long-term disability benefit action, plaintiff Maureen Downes moved for an award of $97,965 in attorneys’ fees and $625.07 in costs. The court granted Ms. Downes’ motion in this decision. Ms. Downes sought attorneys’ fees based on the lodestar approach with an hourly rate of $900 for her counsel reflecting 108.85 hours of work over the course of this litigation. The court was confident that the hourly rate sought was fair and reasonable in the Northern District of California and rejected defendant’s “bald” and “unfounded” assertion that ERISA clients are not actually paying a $900 per hour rate. Moreover, the court exercised its discretion to compensate counsel at current rates for all hours billed during the course of the litigation, particularly as the majority of the time spent on the case occurred this year. Finally, the court was satisfied with plaintiff’s submitted evidence and documentation supporting the number of hours worked. Accordingly, Ms. Downes was awarded unreduced attorneys’ fees. Although Unum did not contest the costs, the court independently reviewed them and determined that the $625.07 in costs were recoverable and appropriate here. Ms. Downes was therefore awarded her full requested costs as well.

Breach of Fiduciary Duty

Second Circuit

Sacerdote v. Cammack Larhette Advisors, LLC, No. 17 Civ. 8834 (AT), 2024 WL 4882173 (S.D.N.Y. Nov. 22, 2024) (Judge Analisa Torres). Back in 2016, faculty at New York University (“NYU”) who participate in two retirement plans offered by the school filed an ERISA action against NYU alleging that it breached its fiduciary duties to ensure that the investments and expenses in the plan were reasonable and prudent. That action, Sacerdote I, did not end favorably for the plaintiffs. Many of their causes of action were dismissed when NYU challenged the pleadings, and in 2018, the court found in favor of NYU on all remaining claims following a bench trial. This backdrop is pertinent here in Sacerdote II because defendant Cammack Larhette Advisors, LLC filed a motion for judgment on the pleadings, arguing that plaintiffs are collaterally estopped from relitigating issues previously decided in Sacerdote I. After giving the matter some thought, the court agreed in part. Although both causes of action – a claim for breach of fiduciary duty and a claim for breach of co-fiduciary duty – survived in some form, the court narrowed the scope of both, finding many issues were indeed precluded from litigation in this case because of the prior proceedings. First, the court addressed plaintiffs’ allegations that Cammack violated its duty of prudence by using inappropriate benchmarks to evaluate plan fees, improperly selecting and retaining expensive investment options with poor performance histories, failing to engage in a prudent monitoring process, including poorly performing proprietary TIAA and CREF stock and real estate accounts in the plan, and accepting an imprudent locked in arrangement whereby the plans were obligated to keep these proprietary investment products, whatever their performance. The court found that allegations regarding inappropriate benchmarks and the investment monitoring process “never arose in Sacerdote I,” and as a result were neither addressed nor precluded. Although they may be closely related to topics which were litigated, the court stated that “daylight exists between the” issues, and Cammack and NYU had distinct duties with respect to the plan as co-fiduciaries. Therefore, the court declined to deprive the participants of their opportunity to litigate these claims against Cammack. Nevertheless, the court found that the “lock-up” allegations regarding NYU’s agreement with TIAA-CREF was precluded given the court’s definitive holdings about these agreements in Sacerdote I. The court next addressed plaintiffs’ claim that defendant acted disloyally when it failed to consider recommending investment options that were not the proprietary funds of the plans’ two recordkeepers, concluding that these claims were likewise precluded by Sacerdote I. Turning to the co-fiduciary duty claim, the court dismissed the portions of this cause of action that were tied to cross-selling and share class claims that “were either dismissed or disposed of at trial” in Sacerdote I. The court was less receptive to Cammack’s argument that many of the alleged breaches were outside of its scope of fiduciary duties. Drawing inferences in favor of plaintiffs, the court could not definitively define the scope of Cammack’s duties and stated it was plausible that they extended to providing advice concerning the recordkeepers’ use of participants’ data. The court was therefore unwilling to dismiss this aspect of plaintiffs’ second cause of action. Based on the foregoing, Cammack’s motion for judgment on the pleadings was granted in part and denied in part, and at least some of the case will move forward.

Discovery

Second Circuit

Cleary v. Kaleida Health, No. 1:22-cv-00026(LJV)(JJM), 2024 WL 4901952 (W.D.N.Y. Nov. 27, 2024) (Magistrate Judge Jeremiah J. McCarthy). Pension plans are a little like stars in that what we see today is really a story of the past. We experience here and now the effects of what happened long ago. This particular story of Kaleida Health’s pension plan takes us back a few decades to the 1990s, when several hospitals were consolidated, their retirement plans were combined, and their traditional defined benefit pension plans were transformed into cash balance plans. Plaintiffs in this class action are seeking discovery into the past, to unveil what took place at that time. The fiduciaries of the plan cross-moved to compel production of a privilege log, and also moved to preclude plaintiffs’ requested discovery. The court exercised its wide discretion to manage discovery in this decision granting in part and denying in part each parties’ respective motion. To begin, the court granted defendants’ motion seeking a privilege log from plaintiffs in compliance with local requirements. The court then addressed plaintiffs’ meatier discovery issues, denying many of plaintiffs’ requests for information and documents that the court deemed unnecessary to plaintiffs’ pending class certification motion. This included data necessary to calculate losses and contact information for each putative class member, as well as a number of requests by plaintiffs for documents relating to plan administration, plan operation, oversight, and management. The court also denied plaintiffs’ motion seeking production of Form 5500s and pension benefit statements. However, the court found that information and documents relating to actuarial evaluations and assumptions from 1998 through present were relevant to class certification because this information relates to whether class members reasonably believed that their cash balance benefit growth equaled the growth in their pension benefits based on defendants’ communications. The court thus ordered the defendants to produce this information. Plaintiffs were also permitted to re-serve two subpoenas, and defendants were ordered to produce withheld documents that were not subject to work-product privilege, and to serve unredacted copies of documents defendants marked “non-responsive.” Accordingly, the discovery decision was a mixed bag for both parties.

ERISA Preemption

Second Circuit

Fairmount Ins. Brokers, Ltd. v. HR Serv. Grp., No. 23-CV-8654 (NGG) (LB), 2024 WL 4871421 (E.D.N.Y. Nov. 22, 2024) (Judge Nicholas G. Garaufis). Plaintiff Fairmount Insurance Brokers Ltd. and defendant HR Service Group d/b/a Infiniti HR entered into a client service agreement in 2021 in which Infiniti agreed to provide professional employment services and entered into a shared employment relationship with Fairmount. As part of this agreement, Infiniti was responsible for managing and administering health insurance benefits for Fairmont’s employees. In accordance with this responsibility, Infiniti arranged with NuAxess 2, Inc. to create and provide a health insurance plan for Fairmont’s employees. Things went south eventually. Fairmont’s employees began complaining of non-payments, declined treatments, and baseless denials of claims for healthcare benefits. Employees were suddenly on the hook for large medical bills, which went unpaid and began accruing interest. Fairmount took legal action to address and rectify these issues. It sued Infiniti in state court alleging breach of contract, breach of fiduciary duties, and negligence, and sought declaratory relief and a court order mandating Infiniti to provide compensation to the employees for all financial harm stemming from the health care coverage fiasco. Infiniti removed the lawsuit to federal court on the basis of federal question jurisdiction, asserting that the action arises under ERISA and the state law causes of action are preempted by ERISA. It then moved to dismiss the complaint in its entirety on ERISA preemption grounds. In this decision the court discussed ERISA preemption and ultimately concluded that ERISA does not completely preempt this action and by extension that it lacks jurisdiction over the matter. Accordingly, the court remanded the action to state court. Though broad, ERISA preemption is not absolute, and as the court noted, there is a critical “though sometimes overlooked” difference between express and complete preemption. Here, the court found the parties’ discussion of complete preemption and the application of the Supreme Court’s Davila test wanting. Nevertheless, the court independently took the reins and investigated whether Fairmount could have brought its action under ERISA Section 502(a). It found it could not, reasoning that employers like Fairmount are neither functional nor named fiduciaries and therefore may only pursue claims under three subsections of the statute: Section 502(a)(8), Section 502(a)(10), and Section 502(a)(11). The court found that Fairmount was not a fiduciary because the healthcare plan only names NuAxess 2 as a fiduciary, and because Fairmount did not act with any discretion with respect to the plan. As for the three subsections of ERISA under which non-fiduciary employers may sue, the court concluded “that Fairmount’s claims for breach of contract, breach of fiduciary duties, negligence, and a declaratory judgment cannot be construed as a colorable claim for relief under any of these subsections,” as they related to funding, contributions, and withdrawals. Thus, the court concluded that Fairmount could not have brought its action under ERISA and that its state law claims accordingly were not completely preempted. Without jurisdiction over the matter, the court stated it was required to remand the action back to state court, where issues over express preemption can be addressed. The court therefore denied Infiniti’s motion to dismiss, and the case will proceed in state court.

Pleading Issues & Procedure

Third Circuit

Akopian v. Inserra Supermarkets, Inc., No. 2:23-cv-00519, 2024 WL 4894620 (D.N.J. Nov. 26, 2024) (Judge Claire C. Cecchi). Plaintiff Andrei Akopian was terminated from his position as a clerk in a New Jersey grocery store after he made threatening comments to the assistant store manager in early 2022. Mr. Akopian suffers from a mental disability, and he believes that his rights were violated under the Americans with Disabilities Act (“ADA”). Accordingly, Mr. Akopian filed a charge with the EEOC and then brought this lawsuit after receiving a right to sue letter. In his action Mr. Akopian asserts causes of action under the ADA, ERISA, the National Labor Relations Act (“NLRA”), and the Labor Management Reporting and Disclosure Act (“LMRDA”) against his former employer, Inserra Supermarkets, Inc., and his union, United Food and Commercial Workers Local 1262. Defendants moved for dismissal. Their motion was granted without prejudice in this decision. The court agreed with defendants that Mr. Akopian’s ADA claims must be dismissed for failure to exhaust administrative remedies, that his NLRA claims are not only time-barred but also are based on conclusory allegations that lack plausibility, that his LMRDA claims were “mere recitations of legal provisions,” insufficient to establish plausible causes of action, and that the allegations of his ERISA claims relating his health care coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) were mere labels and recitations of the elements of COBRA claims. The court also found problematic the fact that the ERISA claims were evidently not brought against the entities with any control over his insurance benefits, as the exhibits submitted with the complaint demonstrate that health and welfare benefits were not provided by either defendant.

Standard of Review

Second Circuit

Rappaport v. Guardian Life Ins. Co. of Am., No. 1:22-cv-08100 (JLR), 2024 WL 4872736 (S.D.N.Y. Nov. 22, 2024) (Judge Jennifer L. Rochon). Plaintiff Jason Rappaport formed Industrial Credit of Canada along with his business partner in 1994 and served as its secretary and treasurer. A decade later, his company, through its insurance broker, applied for group disability insurance coverage from Guardian Life Insurance Company of America. For its owners and business managers, including Mr. Rappaport, the company specified that it wished to purchase coverage which included bonuses and commissions in its earnings definition. Guardian hand-wrote on the application election form to change the earnings definition, correcting the word “excluding” to the word “including.” Notwithstanding these communications, Guardian ultimately issued the long-term disability policy with an earnings definition that excluded bonuses and commissions. Many years later, Mr. Rappaport got sick with leukemia. Following his diagnosis, Mr. Rappaport sought long-term disability benefits under the plan. Guardian approved the claim in 2016, and began paying monthly benefits calculated at $18,333.33. Then, in August 2020, Guardian terminated Mr. Rappaport’s benefits, concluding that Mr. Rappaport no longer qualified for benefits because he was capable of earning more than the maximum allowed while disabled. Mr. Rappaport appealed the adverse determination. Guardian ultimately upheld its denial, though it did so outside of the Department of Labor’s 45-day window for deciding benefit appeals. On September 22, 2022, Mr. Rappaport filed this ERISA action to challenge the termination of benefits, as well as seeking to reform the plan so that “insured earnings” includes bonuses and commissions, as his company intended all along. Guardian responded to the complaint by filing counterclaims related to alleged overpayments. Following discovery, the parties cross-moved for partial summary judgment. Specifically, Guardian moved for summary judgment on Mr. Rappaport’s claim for reformation of the plan under Section 502(a)(3), while Mr. Rappaport sought summary judgment on the standard of review and on Guardian’s two counterclaims. The court began with Guardian’s motion, which raised three arguments in support of summary judgment on Mr. Rappaport’s reformation claim: (1) the claim for reformation is time barred because the claim accrued as of the date the policy was issued in 2005, meaning the six-year statute of limitations had passed before the lawsuit was filed; (2) Mr. Rappaport failed to meet the Rule 9(b) pleading standard by failing to allege with particularity facts constituting mistake or fraud underlying his reformation claim; and (3) Mr. Rappaport failed to present clear and convincing evidence that the parties agreed to anything other than what was reflected in the policy. The court addressed the arguments in turn, and ultimately disagreed with each. First, the court held that the six-year statute of limitations began running not when the policy was issued, but when there was clear repudiation of the benefits that Mr. Rappaport either knew or should have known about. Even if that date was September 21, 2016, when Mr. Rappaport was first approved for long-term disability benefits and informed of his monthly benefit amount, the court stated that the lawsuit was timely. Therefore, the court denied the motion for partial summary judgment on this basis. The court next held that Mr. Rappaport sufficiently pleaded his claim for reformation under the heightened standard of Rule 9(b). Finally, the court concluded that there remain genuine issues of material fact over whether a mutual mistake occurred when Guardian neglected to issue the policy to cover insured earnings with a definition including bonuses and commissions. Accordingly, the court denied Guardian’s partial motion for summary judgment. The court then considered Mr. Rappaport’s motion for summary judgment on the standard of review, and explained why it agreed with Mr. Rappaport that the default de novo standard of review applies, despite the policy’s grant of discretionary authority, because Guardian’s appeal decision was untimely. As a preliminary matter, the court noted that the Second Circuit had already decided in Halo v. Yale Health Plan, 819 F.3d 42 (2d Cir. 2016), that courts must generally review benefit denials de novo when the plan decisionmaker does not comply with the Department of Labor’s claims regulation. Guardian argued that the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo calls Halo into question because the claims regulation exceeded the Secretary of Labor’s grant of delegated authority and impermissibly dictates judicial review standards. We’ve seen this argument raised and rejected before in Cogdell v. Reliance Standard Life Ins. Co., No. 1:23-CV-01343 (AJT/JFA), __ F. Supp. 3d __, 2024 WL 4182589 (E.D. Va. Sept. 11, 2024) (Judge Anthony J. Trenga), which we featured as our case of the week in our September 18, 2024 edition. Contrary to Guardian’s ambitious reading of Loper Bright, the court here likewise held that “Loper Bright does not call into question, or address, deference to agency interpretations of their regulations, instead focusing on Congress’s command that reviewing courts ‘interpret…statutory provisions.’” The court then found that no special circumstances justified Guardian’s extension beyond the 45-day window to render its decision on appeal. Nor did Guardian demonstrate that its lack of compliance with the regulation was both inadvertent and harmless. The decision wrapped up with a determination that there was no equitable relief available under ERISA for Guardian’s counterclaims. Guardian’s first counterclaim seeks repayment of more than $300,000 it claims it allegedly overpaid Mr. Rappaport. The court determined that Guardian failed to adequately and specifically identify funds within Mr. Rappaport’s possession that were recoverable under this claim. The court thus concluded that this did not present a claim for equitable relief under ERISA and entered summary judgment in favor of Mr. Rappaport on the first counterclaim, denying Guardian’s request for leave to amend. With respect to the second counterclaim, which sought a set-off of the allegedly overpaid amounts to “the extent this Court determines that Mr. Rappaport is owed any additional LTD benefits under the Plan,” the court found that there was insufficient briefing on this claim. For these reasons, the court denied Guardian’s partial summary judgment motion and granted in part and denied in part Mr. Rappaport’s motion for partial summary judgment.

Johnson v. Parker-Hannifin Corp., No. 24-3014, __ F.4th __, 2024 WL 4834717 (6th Cir. Nov. 20, 2024) (Before Circuit Judges Moore, Murphy, and Bloomekatz)

We’re bringing you an abbreviated Your ERISA Watch this week because of the holiday. In that spirit, we are covering only one case, but it is far from a turkey and more of a Thanksgiving treat, at least for plaintiffs.

This suit was brought as a putative class action by five former employees of the Parker-Hannifin Corporation who are participants in the Parker Retirement Savings Plan. The Plan is one of the largest 401(k) retirement plans in the country, with approximately $4.3 billion in assets.

The suit challenges one of the investment options chosen for the Plan by Parker-Hannifin, the Northern Trust Focus Funds, a suite of target date funds which were mostly passively managed to mimic the returns of a relevant benchmark. It also challenges the decision of the fiduciaries to choose funds with higher-cost share classes when institutional investors like Parker-Hannifin had the option to invest in the same funds with lower-cost share classes.

The district court granted Parker-Hannifin’s motion to dismiss in its entirety. With respect to claims challenging the prudence of the Plan’s Focus Fund investments, the court held that plaintiffs did not state a viable claim of fiduciary breach because they failed to identify a meaningful benchmark and because the other evidence to which plaintiffs pointed was insufficient to support a claim of imprudence. With respect to the allegation that the fiduciaries had unnecessarily caused the Plan to pay for higher-priced shares, the court held that the plaintiffs’ allegation that any threshold for lower cost shares would have been waived was “speculative and conclusory.” Finally, with respect to a third count alleging a failure to monitor the other fiduciaries, the court held that it was contingent on the success of the other two counts and thus likewise dismissed it. (Your ERISA Watch covered this decision in our December 13, 2023 edition.) 

In a two-to-one decision, the Sixth Circuit disagreed with the district court and reversed the dismissal of the case. The court noted at the outset that prudence “is a process-driven obligation,” meaning that, in the context of “an imprudent-retention claim,” the “ultimate question is whether the fiduciary engaged in a reasoned decision-making process when it decided to retain the investment.”

Given ERISA’s six-year statute of repose, the court agreed with defendants that evidence that the Plan’s original selection of the Focus Funds in 2013 was imprudent because it was untested at that time by live performance data could not support plaintiffs’ allegations that it was imprudent to retain those funds within the statutory period that began in late January 2015. 

Nevertheless, the court agreed with plaintiffs that the other evidence they cited – that the Focus Funds had turnover rates as high as 90%, causing “significant upheaval” and concomitant high transaction costs, and that the Focus Funds significantly underperformed benchmarks – together supported a conclusion that plaintiffs had stated a claim for imprudence in retaining the funds as investment options. The court was not overly troubled by the fact that the high turnover rate predated the statutory period because plaintiffs had alleged that this turnover rate combined with the underperformance made the investment imprudent and because a prudent fiduciary considering retention of a fund would not necessarily be limited to the statutory period in assessing the turnover rate and the performance of the fund.

The court therefore turned to “whether Johnson’s allegations of high turnover rate and underperformance, taken together, sufficiently state a claim for imprudence under ERISA.” The court reasoned that a plaintiff was permitted but not required “to point to a higher-performing fund – in conjunction with additional context-specific evidence – to demonstrate imprudence.” The critical question was whether the plaintiff had pled “facts sufficient to give rise to an inference of insufficient process.”

In this case, the court noted that plaintiffs did identify a meaningful benchmark by pleading that the Focus Funds were “expressly structured to meet an industry benchmark…the S&P target date fund benchmark,” which the Funds underperformed until at least 2014. Based on this allegation, plaintiffs alleged that a prudent fiduciary would have removed the funds by the end of 2015.

The court rejected defendants’ contention that the S&P benchmark was not meaningful, noting that the goal of a passively managed fund is to track an “industry-recognized index,” making “a relevant market index…inherently a meaningful benchmark.” In other words, the court concluded that plaintiffs had alleged that “the Focus Funds did not meet their own disclosed investment objectives.” In the court’s view, this was true whether or not “the Focus Funds were designed to match the S&P target date fund benchmark in particular,” because the complaint alleged that the S&P benchmark was an “industry-recognized standard.”

The court also found that the allegations in the complaint “support reasonable inferences about the imprudence of Parker-Hannifin’s administrative process” by objecting “to Parker-Hannifin’s retention of a fund despite high historical turnover rates and persistent underperformance relative to the Funds’ stated objectives.”  This meant that a “jury could plausibly find that a prudent decision-making process would have considered the Funds’ turnover and underperformance and would have arrived at the conclusion that retaining the funds would not be in the Plan’s best interests.” On these bases, the Sixth Circuit thus reversed the district court’s dismissal of the first claim.

With respect to the higher-cost share classes, the court concluded that the complaint “plausibly alleges that plan fiduciaries breached their duty of prudence by selecting a share class with a higher fee when reasonable effort would have unlocked a class with a lower fee.” Given the allegations that the Plan ranked as one of the largest defined contribution plans in the country, the court found plausible the allegation that the Plan had the “bargaining power to obtain share classes at far lower rates,” even if it did not meet the threshold investment levels for each such share class.

The court ruled that, at the pleading stage, the complaint “plausibly alleges that plan fiduciaries breached their duty of prudence by selecting a share class with a higher fee when reasonable effort would have unlocked a class with a lower fee.” In the court’s view, the dissent, on the other hand, “would apply an inappropriately exacting standard, requiring that Johnson ‘plausibly establish’ that Parker-Hannifin imprudently failed to obtain lower fees” when the complaint “need only plausibly allege facts supporting such an inference and need not establish anything at this stage.” The court thus reversed the district court’s dismissal of this claim as well.

Finally, because the failure to monitor claim was contingent on the other two claims, as all parties agreed, the court reversed the dismissal of the third claim.

Judge Murphy wrote a dissent vigorously disagreeing with the court’s decision as to all three claims. The dissent reasoned that plaintiffs failed to state a claim with respect to the first count because “relative rates of return by themselves tell us nothing useful about an administrator’s prudence either in buying a security or in keeping it.” Even when combined with other allegations, the dissent saw “the complaint’s performance allegations [as] irrelevant…when deciding whether the complaint plausibly suggests that Parker-Hannifin violated its duty of prudence by retaining the Focus Funds in the portfolio between 2015 and 2019.” Likewise, the dissent argued that the high turnover rate in 2013 “does not state a plausible claim that Parker-Hannifin imprudently retained the Focus Funds years later.”

With respect to the allegation that the fiduciaries acted imprudently by causing the Plan to pay for higher-cost share classes, the dissent insisted that the plaintiffs improperly “sought to obtain a ‘universal golden ticket’ to discovery merely by alleging that a large plan’s administrators did not obtain all potential ‘volume-based discounts’ for the plan that a fund provider offered.” Because Judge Murphy saw as conclusory the allegations supporting that lower-cost fee shares were available, he disagreed with his colleagues that the complaint plausibly stated a claim for imprudence.

Whichever point of view you think is right, we at ERISA Watch wish all of you a happy Thanksgiving with your friends and family.