Spence v. American Airlines, Inc., No. 4:23-cv-00552-O, 2024 WL 3092453 (N.D. Tex. Jun. 20, 2024) (Judge Reed O’Connor)

There has been a great deal of controversy engendered by corporate environmental, social, and governance (ESG) initiatives, and ERISA-governed benefit plans are becoming a big part of that debate. Corporations have increasingly focused not only on financial goals, but also on how their decisions affect climate change, social justice, and equity. Thanks to this recent decision denying one corporation’s motion for summary judgment, a first-of-its-kind trial has just concluded in a lawsuit challenging one such plan.

This class action was brought by an American Airlines pilot, Bryan Spence, who is a participant in an American Airlines-sponsored 401(k) plan. He sued the fiduciaries of the plan for breaches of their duties of prudence, loyalty, and monitoring under ERISA, alleging that they mismanaged the plan by including funds that pursue “non-financial and nonpecuniary ESG policy goals through proxy voting and shareholder activism.”

Your ERISA Watch reported on an earlier decision in this case denying the fiduciaries’ motion to dismiss in our February 28, 2024 newsletter, and the district court subsequently certified a class. Defendants then moved for summary judgment, which the district court denied in this lengthy decision.

Throughout the decision, the court signaled that it was receptive to plaintiffs’ theory of liability – that defendants violated their fiduciary obligations by failing to act exclusively in the plan participants’ financial interests because of their personal interest in utilizing financial managers, including BlackRock, committed to ESG goals. “Put simply, Plaintiff’s theory is one of mismanagement due to ESG activism.” The court viewed this theory of liability as “broad and straightforward.” 

Against this backdrop, it was not clear to the court that defendants acted prudently in their administration and management of the plan. “At the outset, Plaintiff points to evidence that Defendants never reviewed or monitored proxy voting by any of the Plan’s investment managers. This lack of review and monitoring even appears to have taken place after Defendants learned that the largest investment manager of Plan assets, BlackRock, voted proxies in support of ESG objectives rather than exclusively in the financial best interests of the Plan.” To the court, the lack of discussion about ESG investment strategies raised a material factual dispute as to whether defendants acted in accordance with prudent fiduciary standards. Importantly, the court focused on the fact that the first time defendants ever discussed ESG-related proxy voting was “after Plaintiff filed this lawsuit.” Based on this, the court found that a reasonable fact finder could conclude that defendants acted “unreasonably under ERISA’s fiduciary duties of prudence and monitoring.”

The court also declined to decide before trial “whether alternative funds and benchmark evidence are necessary for Plaintiff to succeed on the breach of prudence claim or if the mere demonstration that Defendants disregarded, or otherwise failed to act regarding, the established record of ESG underperformance is sufficient on its own without comparators.” This stands in rather stark contrast to most ERISA class action litigation, where courts have required plaintiffs to point to and describe comparators (with greater and lesser degrees of detail depending on the court) in order to even survive a motion to dismiss.

Additionally, the court found it unclear whether defendants violated their duty of loyalty. Here, the court highlighted that senior officials at American Airlines had communications with one another expressing their support for BlackRock’s ESG objectives. The court said these conversations were potential “evidence of corporate ESG goals influencing the administration of the Plan,” which the court viewed as creating genuine questions about whether defendants acted disloyally.

Finally, the court disagreed with defendants that the class could not prove financial loss resulting from the ESG investment decisions. The court found that plaintiff offered sufficient prima facie evidence of losses, while it found that defendants failed to demonstrate “that any losses were not caused by their fiduciary breaches.”

In the court’s view, a reasonable finder of fact could conclude that they “did not take all necessary and timely steps to ensure that the Plan’s assets remained protected. Therefore, at a minimum, there is a factual dispute as to whether Defendants could have taken steps to prevent losses to the Plan.”

For these reasons, the court denied defendants’ motion for summary judgment, and a bench trial was completed on June 27, 2024. Stay tuned for coverage of that decision.

At a minimum, regardless of the outcome of the trial, this action demonstrates the potential risk plans may face if they are committed to ESG principles, and could cause fiduciaries of ERISA plans to pause before pursuing ESG strategies or even invest in vehicles that utilize ESG.

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

Attorneys’ Fees

Sixth Circuit

Davita Inc. v. Marietta Mem’l Hosp. Emp. Health Benefit Plan, No. 2:18-cv-1739, 2024 WL 3226114 (S.D. Ohio Jun. 28, 2024) (Magistrate Judge Kimberly A. Jolson). This action, brought by dialysis providers, concerns terms of the Marietta Memorial Hospital Employee Benefit Plan that “reimburses dialysis services at a depressed rate,” which plaintiffs allege discriminates against participants suffering from illnesses requiring dialysis treatment and by extension, exposes participants to higher costs. The parties fiercely disputed discovery in this action. Eventually, both the district court and the Sixth Circuit weighed in on the dispute. Both ended up finding that plaintiffs were entitled to further discovery and the Sixth Circuit acknowledged that “discovery may yield evidence of Defendants’ motive for instituting unique reimbursement terms for dialysis services.” Defendants continued to resist discovery demands after these rulings, forcing plaintiffs to move to compel discovery. Their motion was granted in part, and the court ordered the parties to do more to resolve their dispute. In the end, defendants agreed to produce nearly everything subject to the motion to compel. Plaintiffs then moved for attorneys’ fees under Rule 37(a)(5)(A) for defendants’ failure to engage in discovery and for their efforts to frustrate discovery proceedings. The court granted plaintiffs’ motion for attorneys’ fees in part in this decision. First, the court held that because it granted the motion to compel only in part, “Rule 37(a)(5)(C) fits better here. And the decision whether to order Defendants to pay plaintiffs’ reasonable expenses is soundly within the Court’s discretion.” The court began its analysis with defendant Medical Benefits Mutual Life Insurance Company (MedBen). It found that MedBen made valid objections about the scope and burden of plaintiffs’ requested discovery and made reasonable arguments for why it viewed plaintiffs’ requests as beyond ERISA’s typical narrow discovery scope. Although the court stated that it was sympathetic to the healthcare providers and the delay they faced as a result of MedBen’s objections, it nevertheless stressed that MedBen ultimately complied with all discovery orders and mounted arguments against production that were not baseless. Accordingly, the court concluded that MedBen’s action did not warrant payment of plaintiffs’ expenses and thus declined their request as it related to MedBen. Next, the court analyzed plaintiffs’ motion as it related to defendants Marietta Memorial Hospital and its plan. The court faulted these defendants for their actions regarding electronic discovery. It stated that they were in the wrong for deleting important emails after plaintiffs moved for discovery, for producing only a small number of documents, and for their unwillingness to share basic information with the plaintiffs and to meet and confer further. These actions, the court concluded, were not done in good faith and were “unreasonable.” “Put simply, Defendants Marietta and the Plan refused to confer with Plaintiffs as ordered until the threat of sanctions and an in-person hearing weighed over their head.” As a result, the court found that an award of fees and expenses was justified, and ordered Marietta and the plan to pay plaintiffs’ reasonable expenses and fees incurred after the court ordered the parties to confer and until May 8, 2024, when they finally did so and resolved the disputes.

Breach of Fiduciary Duty

Third Circuit

McCauley v. The PNC Fin. Servs. Grp., No. 2:20-CV-01493-CCW, 2024 WL 3091754 (W.D. Pa. Jun. 21, 2024) (Judge Christy Criswell Wiegand). In this action plaintiff John McCauley alleges that PNC Financial Services Group, Inc. and PNC Financial Services Group, Inc. Incentive Savings Plan Administrative Committee violated ERISA’s fiduciary duties of prudence and monitoring when they paid excessive recordkeeping fees to the plan’s recordkeeper, Alight. Defendants moved for summary judgment on all three claims: (1) breach of the duty of prudence; (2) failure to monitor fiduciaries and co-fiduciary breaches; and (3) knowing participation in the breach of fiduciary duties. In addition, defendants moved to exclude the testimony and opinions of plaintiff’s expert witness, Ty Minnich. Both motions were granted by the court in this order. First, the court agreed with PNC that Mr. Minnich’s expert testimony was not reliable because it was based solely on his subjective beliefs and experience, and not on “any reproducible or traceable process” or other reliable methodology. “In his Report, Mr. Minnich describes three important factors when calculating a reasonable fee, but he does not indicate how – aside from his experience – he used these to arrive at a reasonable fee.” It was noteworthy to the court that Mr. Minnich “did not create a pricing curve – despite indicating this is the industry norm…to calculate his reasonable fees.” Moreover, it struck the court that Mr. Minnich did not use his four comparator plans as part of his pricing analytic opinions, and instead only provided these comparator plans “as supporting documents to illustrate examples of other plans.” The court saw this as an example of “cherry-picking” the comparators, selecting them only after the fact in order to support the calculations. Therefore, the court found Mr. Minnich’s methodology unreliable and therefore excluded his expert opinion regarding reasonable market fees. In addition, the court further found Mr. Minnich’s opinion as to the amount of damages unreliable, as it was derived from the very assumptions the court took issue with regarding reasonable fee amounts. Accordingly, Mr. Minnich’s testimony was wholly excluded. Without this testimony, the court forged ahead with defendants’ summary judgment motion.  “Here, the Court need not address whether PNC breached its duty of prudence because the Court finds that Mr. McCauley has failed to point to sufficient evidence from which a factfinder could conclude that a breach of fiduciary duties caused a loss to the Plan.” As Mr. McCauley relied on Mr. Minnich’s expert report to establish a prima facie case of loss, and because the court ruled that the expert opinion was inadmissible, it held that Mr. McCauley could not establish loss. As a result, the court granted summary judgment to defendants on count one, as well as on counts two and three which were dependent on the claims in count one.

Ninth Circuit

Paieri v. Western Conference of Teamsters Pension Tr., No. 2:23-cv-00922-LK, 2024 WL 3091495 (W.D. Wash. Jun. 21, 2024) (Judge Lauren King). Plaintiff Michael Paieri commenced this action on behalf of himself and three proposed classes of similarly situated individuals against the Western Conference of Teamsters Pension Trust and its fiduciaries. Mr. Paieri alleges that defendants violated several provisions of ERISA including: (1) its requirement that joint and survivor annuities be actuarially equivalent to single life annuity benefits; (2) its prohibition on cutting back vested accrued benefits; (3) its requirement that participants be provided with necessary information to compare various pension benefit options; (4) its mandate that documents be provided upon written request; and (5) its fiduciary duty standards. Defendants moved to dismiss the action. They argued that the claims were time-barred, that Mr. Paieri did not allege a concrete harm to confer him with Article III standing, and that the claims themselves failed because ERISA does not impose a reasonableness standard for actuarial assumptions, and they were not acting in a fiduciary capacity when they engaged in the conduct alleged. The court denied defendants’ motion to dismiss and concluded that Mr. Paieri has standing to assert his causes of action, that the claims are not time-barred on the face of the complaint, and that Mr. Paieri plausibly stated his claims for relief. First, the court discussed standing. It stated that by asserting defendants failed to fully disclose the relative value of different forms of pension benefits, “the Plan prevented him and other participants ‘from electing the more valuable form of benefit.’” The court stated that these allegations were enough to plead a concrete harm and therefore “sufficient to allege a cognizable informational injury.” Next, the court disagreed with defendants that Mr. Paieri’s causes of action were untimely. It concluded that Washington’s six-year statute of limitations for contract claims is the most analogous to Mr. Paieri’s claims seeking to recover benefits under the plan and thus applicable. In addition, the court said it was “unclear at best whether any statute of limitations began running more than six years prior to his lawsuit.” Thus, the court concluded that defendants could not satisfy their burden of showing on the face of the complaint that any of the claims were untimely, under either Washington’s statute of limitations or ERISA’s fiduciary breach statute of limitations. Defendants’ request to dismiss the claims for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6) was also denied. The court stated “that the plain meaning of ‘actuarial equivalence’ requires reasonable actuarial assumptions,” and determined that Mr. Paieri plausibly alleged the plan is using mortality tables that do not reflect current longevity improvements. Thus, he sufficiently stated a claim for violation of ERISA Sections 1053 and 1055. Additionally, the court found that the complaint does not focus solely on settlor functions of plan design or amendments, but affirmatively alleges that defendants functioned as fiduciaries. Based on the foregoing, the court denied the motion to dismiss in its entirety. In addition to their motion to dismiss, defendants moved to bifurcate the action into two phases – liability and damages. This motion was granted by the court. The court determined that phasing discovery and bifurcating the action will preserve resources, promote efficiency, and advance the interest of judicial economy without prejudicing either party.

Tenth Circuit

Su v. Ascent Constr., No. 23-4114, __ F. 4th __, 2024 WL 3093647 (10th Cir. Jun. 24, 2024) (Before Circuit Judges Phillips, Kelly, and Moritz). In 2022, the Department of Labor (DOL) began investigating Ascent Construction, Inc. and its president and CEO, Bradley Knowlton, to determine whether they violated their fiduciary duties under ERISA in handling the company’s Employee Stock Ownership Plan. That investigation revealed that Mr. Knowlton had engaged in self-dealing and deposited hundreds of thousands of dollars of the plan’s assets into the company’s checking account to pay business expenses. In addition, the investigation discovered that a former employee requested a distribution from his retirement account that he never received even though the plan’s custodian issued a distribution check at Mr. Knowlton’s request. It also became clear to the DOL that the company was experiencing financial distress. The DOL learned that Ascent Construction and Mr. Knowlton were being sued by an insurance company. (That action ended with the insurance company receiving a $26 million judgment against Ascent and Mr. Knowlton.) Eventually, the DOL froze the plan’s funds and filed this lawsuit alleging Ascent and Mr. Knowlton were violating ERISA’s fiduciary duties and prohibited transaction rules. As part of its complaint, the Labor Department sought a permanent injunction removing Mr. Knowlton and Ascent from their respective positions as trustee and administrator of the plan and appointing a new independent administrator in their places, as well as an order offsetting Mr. Knowlton’s individual account balance against any amounts owed to the plan participants for the breaches of defendants’ duties. Shortly after it filed its complaint, the DOL moved for a preliminary injunction removing defendants as plan fiduciaries and appointing an independent fiduciary to prevent further violations of ERISA and dissipation of plan assets. The district court granted the preliminary injunction motion. (Your ERISA Watch covered the decision in our July 12, 2023 issue.) Defendants responded by filing this interlocutory appeal to the Tenth Circuit Court of Appeals. While the appeal was pending, the case proceeded in the district court. In late January 2024, the district court ordered defendants to show cause for their failure to timely answer the Department’s amended complaint and warned that further failure to comply with court orders could result in default judgment against them. “In a later order, the district court concluded that defendants willfully failed to engage in the litigation process and comply with the court’s orders, prejudicing the DOL and interfering with the judicial process. And as warned, it entered a default judgment against defendants under Federal Rules of Civil Procedure 16(f)(1)(C) and 37(b)(2)(A)(vi) in the amount of $288,873.64. It also entered a permanent injunction that superseded the preliminary injunction at issue in this appeal, permanently barring Knowlton and Ascent from serving, respectively, as trustee and administrator of the Plan and authorizing the appointed fiduciary to terminate the Plan and commence a claim-submission process.” Because of the district court’s holdings, the DOL responded to the pending interlocutory appeal by moving to dismiss it as moot. In this decision the Tenth Circuit agreed and concluded that the district court’s issuing of the permanent injunction and entering final judgment rendered the appeal moot. As the court of appeals plainly put it: “A preliminary injunction dissolves automatically with the entry of final judgment.” This was true, even as here, where the district court entered a default judgment rather than a final adjudication on the merits of the claims. The court broadly rejected defendants’ application of the Supreme Court’s decision in Grupo Mexicano v. Alliance Bond Fund. Inc. and explained why it was distinguishable. “We agree with the DOL that Grupo Mexicano does not preserve our subject matter jurisdiction over this appeal. Unlike the preliminary injunction in Grupo Mexicano, which sought to preserve the holding company’s assets in case of final judgment against it on the breach-of-contract claim, the preliminary injunction here sought ‘to enjoin, pending the outcome of the litigation, action that [the DOL] claims is unlawful.’” Accordingly, the appeals court agreed with DOL that the aim of the underlying litigation, unlike in Grupo Mexicano, aligned with the effects of both the preliminary and later the permanent injunctions. Consequently, the Tenth Circuit concluded that granting defendants’ requested relief vacating the preliminary injunction would not have a real world effect, thus rendering the appeal moot. Therefore, the Tenth Circuit dismissed the appeal for lack of subject-matter jurisdiction.

Disability Benefit Claims

First Circuit

Bernitz v. USAble Life, No. 22-cv-10712-DJC, 2024 WL 3106249 (D. Mass. Jun. 24, 2024) (Judge Denise J. Casper). In this action plaintiff Steven Bernitz alleges defendants USAble Life and Fullscope RMS wrongfully terminated his long-term disability benefits. In December 2013, Mr. Bernitz was hired by Synta Pharmaceuticals as its senior vice president of corporate development. Unfortunately, he stopped working not long after. In June 2014, Mr. Bernitz applied for disability benefits after he experienced a sudden onset of severe back pain in late April of that same year, which left him unable to sit for extended periods of time. Mr. Bernitz’s claim for benefits included a statement from his treating doctor noting that MRI results showed “severe degenerative disc disease and neuroimpingement.” He was later diagnosed with spondylosis with radiculopathy. In March 2015, USAble Life approved his claim for long-term disability benefits. Over the coming years, Mr. Bernitz underwent multiple extensive spinal surgeries. Ultimately, his treating physicians noted to USAble Life that his condition was “permanent and irreversible,” and that the surgeries had only “resulted in very minor symptom improvement.” In addition to the physical symptoms, Mr. Bernitz also suffered from cognitive concentration problems resulting from side effects from his pain medication. Despite the seeming severity of Mr. Bernitz’s condition, in late 2018, an administrative law judge for the Social Security Administration denied Mr. Bernitz’s application for Social Security disability benefits, and shortly after, in 2019, USAble Life terminated Mr. Bernitz’s long-term disability benefits. The medical reviewer for the insurance company concluded that Mr. Bernitz’s condition had improved, as he had recently lost about 70 pounds and hip surgery had been performed with good results and the combination appeared to be having a positive effect on Mr. Bernitz’s physical condition. Thus, defendants informed Mr. Bernitz that he was no longer impaired from performing a full-time sedentary occupation. Under arbitrary and capricious review, the court affirmed the termination decision in this decision ruling on the parties’ cross-motions for summary judgment. The court agreed with defendants that their decision to deny benefits was supported by substantial evidence in the record of medical improvement and therefore reasonable. “At base, USAble Life rooted its determination that Bernitz’s condition had improved in substantial evidence, including, inter alia, the ALJ’s denial of Bernitz’s application for SSDI benefits (and the Social Security Appeals Council’s affirmance of same), his significant weight loss and the medical benefits of same, his travel to domestic and international destinations, and the personal observations of investigators.” Accordingly, the court expressed that it could not discern any error with respect to USAble Life’s termination of Mr. Bernitz’s long-term disability benefits. Moreover, the court did not take issue with defendants’ handling of his administrative appeal and stressed that defendants simply decided to afford greater weight to their own doctors than to the opinions of Mr. Bernitz’s treating providers, which was not arbitrary and capricious. Thus, the court granted defendants’ motion for summary judgment, and denied Mr. Bernitz’s motion for summary judgment.

Fourth Circuit

Ward v. Reliance Standard Life Ins. Co., No. SAG-23-2147, 2024 WL 3206709 (D. Md. Jun. 21, 2024) (Judge Stephanie A. Gallagher). Plaintiff Christine Ward filed this action under ERISA Section 502 against defendant Reliance Standard Life Insurance Company after Reliance Standard terminated her long-term disability benefits under an ERISA-governed benefit plan. In this decision the court decided the parties’ cross-motions under Federal Rule of Civil Procedure 52, and ruled in favor of Ms. Ward. Ms. Ward became disabled in 2021 after she became one of the millions of Americans to suffer from post-acute COVID or long-COVID syndrome. This illness left Ms. Ward unable to continue working in her high-level position as a senior systems engineer at the MITRE Corporation on work related to Medicare, Medicaid, and the Defense Department. Before it began analyzing the termination decision, the court addressed the parties’ dispute about the appropriate mechanism for the court’s review. Although both parties agreed that Reliance Standard’s decision is subject to abuse of discretion review, Ms. Ward argued that regardless of the review standard the court should conduct a bench trial on the record under Rule 52 rather than issue a ruling on summary judgment. Citing recent Fourth Circuit precedent, the court agreed with Ms. Ward. The court rejected Reliance Standard’s argument “that the Fourth Circuit did not opine that Rule 52 is the proper mechanism to use in a case, like this one, which is subject to abuse of discretion review instead of de novo review.” The court stated that it did not view either Rule 52 or Rule 56 as proving “an ideal mechanism for resolution of this case,” but that on balance “a Rule 52 trial conducted on the papers, while carefully adhering to the abuse of discretion standard, is the better course.” Having settled on Rule 52 review, the court turned to the merits. The court stressed at the outset that Reliance Standard failed to consider the cognitive effects of Ms. Ward’s illness, and focused merely on the physical requirements of her regular occupation. It took issue with this.  “Sedentary occupations’ run the gamut from jobs with very few cognitive requirements…to very extensive cognitive requirements, which can only be performed by a person with the appropriate physical plus cognitive capabilities. Plaintiff’s senior engineering position is certainly on the higher end of that wide range. The logical fallacy in Reliance Standard’s reasoning compounded its failure to confront the evidence of Plaintiff’s continuing cognitive dysfunction and resulted in a determination unsupported by substantial evidence.” The court went on to state that the records did not reflect sustained improvement in Ms. Ward’s cognitive functioning. To the contrary, “records from Plaintiff’s visit to Dr. Pressman in July, 2022 reflect ongoing issues with cognitive functioning.” Thus, the court broadly held that Reliance Standard disregarded the plan language requiring it to evaluate Ms. Ward’s ability to perform the material duties of her own regular occupation, and failed to adequately consider the materials Ms. Ward submitted throughout her administrative appeals process. Accordingly, the court concluded that the decision to terminate benefits was not the result of a reasoned and principled decision making process and was not supported by substantial evidence in the record. Judgment was therefore granted in favor of Ms. Ward. However, because the court concluded that Reliance Standard failed to appropriately address Ms. Ward’s cognitive symptoms in its assessment, the court did not believe it was appropriate to decide for itself whether Ms. Ward is disabled from her occupation. Instead, the court concluded that remanding to Reliance Standard was the appropriate remedy here, and ended its decision by taking this course of action.

Sixth Circuit

Jackson v. Hartford Life & Accident Ins. Co., No. 2:22-cv-3955, 2024 WL 3218236 (S.D. Ohio Jun. 28, 2024) (Judge Sarah D. Morrison). Plaintiff Diana Jackson commenced this action to challenge defendant Hartford Life & Accident Insurance Company’s decision to terminate her long-term disability and waiver of life insurance premium benefits. Hartford had been paying Ms. Jackson monthly benefit payments over the past 19 years, since the onset of her disability in 2002. In this decision the court ruled on the administrative record and granted judgment in favor of Hartford. As a preliminary matter, the court proceeded under arbitrary and capricious standard of review as both the long-term disability and the life insurance policy grant Hartford full discretion. Under this deferential review standard, the court agreed with Hartford that the opinions of its medical reviewers and those of the medical examiner who personally examined Ms. Jackson support its conclusion that by 2021 Ms. Jackson’s physical disabilities had improved to the point where she “is now able to work certain sedentary, unskilled jobs.” Although the court recognized that some evidence in the administrative record “cut[s] in the other direction,” it nevertheless clarified that it did not find the evidence supporting a finding of disability so overwhelming as to “establish that Hartford’s decision to terminate benefits is unsupported by substantial evidence.” Moreover, the court stated that evidence in the record belied Ms. Jackson’s assertion that her decades-long condition had not improved when Hartford terminated benefits. The court additionally disagreed with Ms. Jackson that Hartford was guilty of “cherry-picking” evidence in her medical history to support its desired outcome. Finally, the court expressed that Hartford’s employability assessment reports were acceptable irrespective of the fact that the identified occupations would require Ms. Jackson to undergo some training to perform them. Accordingly, the court granted Hartford’s motion for judgment on the administrative record and affirmed its decision to terminate Ms. Jackson’s benefits.

Medical Benefit Claims

Tenth Circuit

H.R. v. United Healthcare Ins. Co., No. 2:21-cv-00386-RJS-DBP, 2024 WL 3106468 (D. Utah Jun. 24, 2024) (Judge Robert J. Shelby). This case involves the denial of benefits for the mental healthcare treatment of a child, and like all of these actions of a similar nature it is distressing but important. This particular action revolves around father and son, H.R. and D.R., and tells the R. family’s frustrating story about their ERISA healthcare plan’s refusal to cover D.R.’s much-needed residential treatment. “After being sexually abused by a babysitter when he was seven years old, D.R. began receiving therapy.” D.R.’s outpatient psychiatric healthcare providers recommended D.R. receive more intensive treatment in a residential treatment program setting, as they were concerned about his aggressive and violent behaviors, including suicidal ideology and self-harm. The R. family agreed with this treatment recommendation, and subsequently admitted D.R. to two adolescent treatment programs seeking therapeutic care for their son. On the bright side, this care was very helpful to D.R., who made great progress. Nevertheless, this healthcare was expensive, and this litigation of course stems from the refusal of their healthcare plan, the Corning Medical Welfare-Health Plan, to cover the treatment. The plan’s administrator, defendant United Behavioral Health (UBH), provided shifting denials to the family, including that the treatment was investigational, that it was not medically necessary, and that the treatment centers themselves did not meet certain staffing criteria. The family alleged that UBH did not meaningfully engage with D.R.’s medical records or the family’s arguments on appeal, and also failed to supply plan documents to the family despite letters sent requesting them. After exhausting the administrative appeals process, the family commenced this action seeking a court order overturning the denials. Plaintiffs asserted three causes of action; (1) a claim for wrongful denial of benefits under Section 502(a)(1)(B); (2) equitable relief claims for violating the Mental Health Parity and Addiction Equity Act under Section 502(a)(3); and (3) a claim for statutory penalties under Sections 502(a)(1)(A) and (c) for failure to produce plan documents upon written request. The parties filed cross-motions for summary judgment, which the court ruled on in this decision. As an initial matter, the parties agreed that arbitrary and capricious standard of review was appropriate for the denial of benefits claim. The court did not hold back in its discussion on why it believed the denials were an abuse of discretion under ERISA. In one particularly noteworthy paragraph the court wrote, “The fact Defendants’ level two appeal decision acknowledged without explanation that D.R. could have received inpatient treatment at a qualifying RTC does not absolve [the] deficiencies. In fact, it underscores the arbitrariness of Defendants’ determinations. When Defendants’ own reviewers come to inconsistent conclusions and fail to provide any explanation for the shift in rationale, it is unclear how these determinations offer any clarifying information to Plaintiffs or could be anything but arbitrary and capricious. One purpose of ERISA’s full and fair review is the ‘consistent treatment of claims.’ Defendants’ inconsistency here – particularly in view of Defendants’ subsequent denial of D.R.’s residential treatment at Maple Lake for lack of medical necessity – does not advance this objective, nor does it suggest to the court their determinations were ‘made on a reasoned basis.” Defendants’ principal argument in response was that other courts have upheld substantially similar denials under arbitrary and capricious review. The court did not mince words in stating that it did not find this, or any other argument offered by defendants, compelling. The court consistently reprimanded UBH and the plan for not engaging with the family and issuing denials that were conclusory, inaccurate, and ever shifting. Accordingly, the court overturned the denial of benefits for both residential treatment centers and granted summary judgment to plaintiffs on their claims for benefits. However, rather than award benefits outright, the court followed Tenth Circuit guidance, and determined that remand to defendants was the appropriate course of action here. Nevertheless, the court imposed guardrails on defendants’ power during remand, and stipulated that defendants may only consider whether one treatment center met plan criteria for covered residential treatment centers, and for the second treatment facility that they may only consider whether the treatment there was medically necessary. Additionally, because the court reversed and remanded the benefit determinations, it concluded that the Parity Act claim was not ripe and declined to resolve it at this stage. Finally, the court agreed with plaintiffs that they were entitled to statutory penalties for defendants’ failure to provide the requested plan documents. The court awarded a penalty of $95 per day for 824 days, which resulted in a not insignificant sum of $78,280 payable to the R. family. The decision ended with the court postponing a final decision on attorneys’ fees and costs, but reassuring the family that they “have achieved some degree of success on the merits” already.

Pension Benefit Claims

Seventh Circuit

Haynes v. Kone Emps. Ret. Plan, No. 21 C 6647, 2024 WL 3201271 (N.D. Ill. Jun. 27, 2024) (Judge Elaine E. Bucklo). Plaintiff Robert Haynes was employed by KONE, Inc. from 1976 until his retirement in 2021 and was a participant in the KONE Inc. Employees’ Retirement Plan, a defined benefit pension plan. From August 2011 through the middle of 2015, Mr. Hayes was on an international assignment and worked at KONE’s Canadian office. At issue in this lawsuit was KONE’s decision to interpret the term “compensation” in the plan to exclude amounts paid to Canadian tax authorities to calculate Mr. Haynes’ pension benefit attributable to his foreign assignment. This interpretation and application of the term resulted in a reduction of tens of thousands of dollars of pension benefits. As the plan did not contain any language warning of this result, and because he believed his foreign assignment contracts with the company cut against this reading and resulting calculation, Mr. Haynes’ challenged the benefit decision, first through an administrative appeal, and later in this civil litigation. The parties each filed competing motions for summary judgment under arbitrary and capricious review. In this order the court granted judgment in favor of Mr. Haynes. It held that KONE’s decision was arbitrary and capricious. “For time spent working in the United States, KONE interpreted ‘Compensation’ to include Haynes’ gross salary and bonuses; but for his time on foreign assignment, KONE interpreted this same provision to include only net salary and bonuses.” The court stated, “Having so interpreted the Plan, KONE was not free to change course without an explanation.” To do so, the court expressed, was fundamentally an abuse of discretion as it resulted in Mr. Haynes being unfairly and “heavily penalized by way of a reduction in pension benefits.” Thus, even under deferential review, the court concluded that KONE’s explanation did not pass muster, stating that it lacked support in the record, that it was expressly contradicted by the plan language, and so “withers even under the deferential scrutiny applicable here.” Accordingly, the court ruled that Mr. Haynes was entitled to summary judgment. However, the court did not award benefits outright. Instead, it remanded to KONE to determine whether Mr. Haynes’ benefits should be calculated based on compensation using gross earnings he received in Canada converted to USD or to calculate benefits using Mr. Haynes’ “home base salary.” “I cannot say with certainty what the proper calculation is, so…remand to the administrator to calculate Haynes’ pension benefit consistent with this opinion is the right course here.”

Ninth Circuit

Liu v. Kaiser Permanente Emps. Pension Plan for the Permanente Med. Grp., No. 23-cv-03109-AMO, 2024 WL 3090483 (N.D. Cal. Jun. 20, 2024) (Judge Araceli Martinez-Olguin). Plaintiff Sherry Yali Liu applied for pension benefits under Kaiser Permanente’s defined benefit plan after her sister, a participant in the plan, died. Ms. Liu’s claim for benefits was denied. The denial letter explained that benefits were not payable to Ms. Liu because she was never designated as a beneficiary and the plan had never been provided with any information that her sister had any qualified dependent. Following an unsuccessful administrative appeal, Ms. Liu initiated this ERISA action asserting claims under Sections 502(a)(1)(B) and (a)(3) seeking payment of the pension benefits. Defendants moved to dismiss. The court granted their motion, with prejudice, in this decision. It agreed with defendants that Ms. Liu could not sustain her claim for benefits as the face of the complaint made clear that her late sister never completed a valid benefit election form designating Ms. Liu as her beneficiary before her death. Thus, the court concluded Ms. Liu was not entitled to benefits under the plain reading of the plan. Moreover, the court stated that even if the “substantial compliance doctrine” applied to the circumstances here, as Ms. Liu was arguing, the only step her sister took – initiating the online beneficiary process – fell well short of substantial compliance. As for Mr. Liu’s argument that she was entitled to her sister’s pension benefits as a matter of law under IRS Section 401(a)(9)(E), the court succinctly disagreed, noting “Code § 401(a)(9)(E)(ii) does not apply here, as it applies only to defined contribution plans not defined benefit plans such as the Plan.” Even assuming it did apply, the court went on to state that it would not render Ms. Liu her sister’s designated beneficiary; “it might at most make her eligible for designation as a beneficiary.” For these reasons the court dismissed Ms. Liu’s claim under Section 502(a)(1)(B). Finally, the court addressed Ms. Liu’s breach of fiduciary duty claim under Section 502(a)(3). Here, the court held that the (a)(3) claim did not arise from a separate injury or seek a different remedy of the (a)(1)(B) claim, rendering it duplicative. Further, the court held that Ms. Liu’s complaint failed to allege a breach of fiduciary duty, as the record demonstrated that Kaiser complied with the plan terms. Thus, the court concluded that the complaint failed to state claims for relief and therefore granted the motion to dismiss.

Provider Claims

Second Circuit

Biodiagnostic Labs v. Aetna Health Inc., No. 23-cv-9571 (BMC), 2024 WL 3106169 (E.D.N.Y. Jun. 23, 2024) (Judge Brian Cogan). Plaintiff Biodiagnostic Labs, Inc. brought eight actions against a variety of health insurance companies and benefit managers. In them, the lab seeks payment to reimburse it for COVID-19 diagnostic testing it provided to insured patients throughout the pandemic. Some, but not all, of the healthcare plans at issue are governed by ERISA. The patients assigned their rights to the provider for the tests. Plaintiff is suing on behalf of the assigned patients. All eight of the actions were consolidated for this decision ruling on defendants’ motions to dismiss, “since those motions raise the same legal issues.” First, all defendants sought dismissal of the claim for relief under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. They argued, and the court agreed, that the CARES Act does not include a private right of action to sue. Next, the court concluded that to the extent plaintiff’s breach of contract claims fall under ERISA-governed healthcare plans, they are preempted by ERISA “and plaintiff must pursue the dispute resolution procedures set forth in ERISA and in those plans.” Finally, the court declined to exercise supplemental jurisdiction of the state law claims for any of the non-ERISA policies. However, the court noted that dismissal of these claims was without prejudice to recommencement in state court. For these reasons, the court granted defendants’ motions to dismiss.

Third Circuit

Advanced Gynecology & Laparascopy of N. Jersey v. Cigna Health & Life Ins. Co., No. 19-22234 (ES) (MAH), 2024 WL 3159414 (D.N.J. Jun. 25, 2024) (Judge Esther Salas). Plaintiffs in this action are out-of-network New Jersey-based healthcare providers. In this lawsuit asserting claims under ERISA, RICO, and state law, the providers accuse Cigna Health and Life Insurance Company and its subsidiaries of systematically underpaying emergency and elective healthcare services through a series of complex and fraudulent processes and procedures. The complaint further alleges that rather than reimbursing the providers in the amounts they assert they are entitled to under the plans, federal and state law, and by Cigna’s promises, Cigna utilizes a tangled repricing web to enrich itself at their expense, as well as at the expense of patients and healthcare plans. Overall, the providers allege they were underpaid 1,677 times for different claims they submitted to Cigna. Plaintiffs have faced difficulties getting their action past defendants’ challenges to their pleadings. In a previous order the court granted Cigna’s motion to dismiss. In response, plaintiffs filed their third amended complaint alleging violations of ERISA for breach of fiduciary duties and failure to pay benefits, RICO conspiracy violations, and state law breach of contract and breach of the covenant of good faith and fair dealing. Once again the Cigna defendants moved to dismiss. This time their motion was granted by the court with prejudice. To begin, the court agreed with defendants that “Plaintiffs have once more failed to sufficiently allege that they were underpaid in violation of Plan terms.” The court stressed its view that “it is inappropriate to conflate billed charges with normal charges,” and that plaintiffs’ underpayment claims for both elective and emergency services hinge on allegations that improperly conflated normal and full-billed charges. This was especially true, the court said, where “we are dealing with twenty-three different healthcare providers, thousands of different patients, and various different procedures.” Accordingly, the court deemed plaintiffs’ Section 502(a)(1)(B) ERISA claim insufficient to put defendants on notice that they failed to reimburse the provider’s normal charges for each of the medical procedures at issue. Moreover, the court explained that dismissal was with prejudice because “Plaintiffs have had four chances to plead a proper § 502(a)(1)(B) claim (with clear instructions from the Court on how to do so that went unfollowed), and thus further amendment appears futile.” In the next section, the court dismissed plaintiffs’ ERISA fiduciary breach causes of action. It ruled that the providers lacked standing to allege their fiduciary duty claims for disgorgement of profits, agreeing with defendants that the only direct victims of the alleged embezzlement scheme are the plan sponsors. “There is no indication in the Third Amended Complaint that [the cost-containment fees described by Plaintiffs] would have gone to Plaintiffs if Defendants had acted as Plaintiffs allege they should have and paid Plaintiffs their full normal charges – such an argument is simply speculative.” Thus, the court found that plaintiffs failed to sufficiently allege an injury to themselves stemming from defendants’ alleged breach of fiduciary duties. Additionally, the court further noted, “Plaintiffs’ ERISA-based claims of breach of fiduciary duties of loyalty and due care necessarily fail because these claims derive from the allegation that Defendants underpaid Plaintiffs in violation of the relevant Plans, and Plaintiffs have not, as described above, ‘plausibly pleaded that Cigna wrongfully withheld benefits.’” Thus, the court dismissed the fiduciary breach claims. The court similarly dismissed plaintiffs’ RICO claims for failure to allege RICO injury or causation. “Plaintiffs have once more failed to sufficiently allege that they were underpaid under the Plans…They have thus also failed to allege an injury caused by Defendants’ RICO violations.” Finally, the court declined to exercise supplemental jurisdiction over the remaining state law causes of action. For these reasons, the court granted defendants’ motion to dismiss in its entirety, and plaintiffs were denied leave to amend their complaint further.

Abira Med. Labs. v. Blue Cross & Blue Shield of Mont., No. 23-20755 (GC) (JBD), 2024 WL 3199967  (D.N.J. Jun. 26, 2024) (Judge Georgette Castner). As Your ERISA Watch has reported, Abira Medical Laboratories, LLC filed more than forty actions against insurance companies, welfare funds, healthcare plans, and third-party administrators for failure to pay for laboratory testing, including for COVID-19 tests. We have selected this decision as an exemplar, but several other Abira decisions were also issued this week with similar rulings. Much like previous Abira decisions Your ERISA Watch has covered, the court here held that Abira could not invoke ERISA’s jurisdictional provisions without asserting a cause of action under ERISA. Instead, the laboratory asserted seven state law causes of action for breach of contract, breach of the covenant of good faith and fair dealing, fraudulent misrepresentation, negligent misrepresentation, promissory estoppel, equitable estoppel, and quantum meruit/unjust enrichment. Because Abira did not assert a cause of action under ERISA, or even allege that the plans at issue are governed by ERISA, this court, like others in the Third Circuit have done, held that ERISA was irrelevant to the jurisdictional analysis. “As to Defendants’ communications with Plaintiffs about alleged claims, district courts in the Third Circuit also repeatedly rejected nearly identical allegations as creating specific jurisdiction. These courts have found that a physician’s unilateral choice to send a patient’s specimen to a laboratory for testing does not create personal jurisdiction over the patient’s insurer in the laboratory’s home state when the insurer simply pays the resulting claims or communicates with the laboratory about the claims.” Thus, like those other cases, the court here also held that Abira failed to establish that Blue Cross & Blue Shield of Montana had the requisite minimum contacts with New Jersey to avail itself of the forum. Accordingly, the court concluded that it lacks specific jurisdiction over defendant in this matter. In addition, the court determined that Abira failed to establish that general jurisdiction exists over Blue Cross & Blue Shield of Montana in New Jersey as its only argument in favor of general jurisdiction was that Blue Cross of Montana did business with it and it is a New Jersey corporate citizen. Finding that it lacks both specific and general jurisdiction in this action, the court dismissed the case without prejudice.

Subrogation/Reimbursement Claims

Eleventh Circuit

Spain v. Bice, No. 7:23-cv-1681-RDP, 2024 WL 3106898 (N.D. Ala. Jun. 24, 2024) (Judge R. David Proctor). This action stems from a 2019 multi-car accident where a minor child, Hunter Bice, was injured. Plaintiffs Pamela Spain, Jack Kendrick, Calera Industrial Supply, LLC, Sentry Insurance, and Alfa Mutual Insurance filed this interpleader action in state court in Alabama, naming Hunter and Shannon Bice, Royce McKinney, United Healthcare Insurance, and Optum Corporation as defendants. The ERISA-governed employee benefit plan then got involved. It answered the bill of interpleader and asserted that it provided healthcare coverage to Hunter Bice and that it had a subrogation interest under the plan’s reimbursement clause. Plaintiffs subsequently added the plan as a defendant in their action. Over the next three years, the interpleader action “sat dormant” as the Bices pursued a personal injury suit related to the car crash. Once that case settled, the interpleader once again became active, and plaintiffs dismissed Royce McKinney as a defendant. They also paid the entirety of the insurance proceeds that were the focal point of the interpleader action to Hunter Bice. Then the Bice family filed a crossclaim against United for compensatory and punitive damages and a third party claim against UAB hospital to invalidate its lien related to Hunter Bice’s medical treatment. Shortly after, the Bice family added the plan as a crossclaim defendant seeking a declaratory judgment requiring either United or the plan to pay the remaining medical bills. United and Plan responded to the crossclaims by filing a notice of removal, asserting that the claims are subject to ERISA and establish federal question jurisdiction. The Bices did not consent to removal and filed this instant motion to remand their action back to state court. They argued that a crossclaim cannot serve as the basis for removal to federal court and that removal was improper as it was both untimely and violated the unanimity rule, which requires all defendants who have been properly serve to consent to the removal. The court agreed, and granted the motion to remand. “The court finds that a crossclaim cannot authorize removal, and, even if it could, United and the Plan’s Notice of Removal violates the unanimity rule.” The court flatly rejected the idea that a crossclaim creates a separate removable civil action. Further, the court declined to “bypass procedural requirements” to realign the parties. It stated, “here, based on the Bill of Interpleader, the parties are already properly aligned according to their interests.” Thus, the court expressed that it could not, and was not inclined to, realign plaintiffs and defendants. Absent the consent to removal of all of the defendants, and in light of the fact that a crossclaim cannot authorize removal, the court granted the motion to remand.

For the second week in a row, no single decision struck us as worthy of the spotlight. Perhaps the courts, like much of the rest of America, were too exhausted by the heatwave to set any precedents or make any rash decisions. Still, ERISA enthusiasts should read on to learn about the use of proprietary investments in retirement plans, “a novel question” about forfeited employer contributions, the discriminatory termination of a CEO with Parkinson’s disease, and whether an underpaid healthcare provider can bring a single lawsuit involving 126 of its patients covered under 72 different health insurance plans relating to 291 different medical claims (spoiler: no).

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

Attorneys’ Fees

Eleventh Circuit

Ferguson v. PNC Fin. Servs. Grp., No. 2:19-cv-01135-MHH, 2024 WL 3015751 (N.D. Ala. Jun. 14, 2024) (Judge Madeline Hughes Haikala). In this decision the court ruled on class counsel’s requested attorneys’ fees of $2,033,332.13, which represented an award of one-third of the $6.1 million settlement fund. The decision began with the court noting that it received no objections to the requested fees and that defendant PNC did not take a position regarding the fee award. Nevertheless, the court stated that the absence of objections did not release it from its duty to assess the reasonableness of the fees or from its obligation to serve as a fiduciary for the class plaintiffs. Therefore, the court evaluated the reasonableness of the requested fee recovery pursuant to Federal Rule of Civil Procedure 23(h). Class counsel asserted that they devoted nearly 6,000 hours working on this action and “that the claims in this case concern complicated ERISA issues.” Moreover, the attorneys attested that they took the case on a contingency basis, and therefore assumed significant risk litigating this matter. Finally, counsel focused on their expertise, knowledge, and “considerable experience handling complex ERISA class litigation.” Factoring all of this in, the court concluded that “30% is a reasonable percentage to apply to the Common Fund to assess Class Counsel’s fee in this case.” Accordingly, the court awarded fees in the amount of $1,830,000.

Breach of Fiduciary Duty

Ninth Circuit

Hutchins v. HP Inc., No. 23-cv-05875-BLF, 2024 WL 3049456 (N.D. Cal. Jun. 17, 2024) (Judge Beth Labson Freeman). Recently, Your ERISA Watch has spotted a new species of cases centering on the use – or is it the misuse? – of forfeited employer contributions. We covered two such cases (Yagy v. Tetra Tech, Inc. and Perez-Cruet v. Qualcomm Inc.) in our June 5, 2024 newsletter. These lawsuits ask “a novel question: Whether and under what circumstances is a plan administrator’s decision to use ‘forfeited’ employer contributions to a retirement plan to reduce employer contributions rather than to pay administrative costs” a violation of ERISA? Here, plaintiff Paul Hutchins, a participant of the HP Inc. 401(k) plan, alleges that defendants HP and the HP Inc. Plan Committee have used forfeited matching contributions solely to reduce the expense of company contributions to the plan. He maintains that this decision is a violation of ERISA. On November 14, 2023, Mr. Hutchins, on behalf of a putative class of plan participants and beneficiaries, commenced this action challenging defendants’ use of the forfeited assets. In his lawsuit Mr. Hutchins asserts six causes of action under ERISA; (1) breach of the fiduciary duty of loyalty; (2) breach of the fiduciary duty of prudence; (3) breach of ERISA’s anti-inurement provision; (4) prohibited transactions with parties in interest; (5) prohibited transactions by the fiduciary dealing in plan assets in its own interest; and (6) failure to monitor fiduciaries. Defendants moved to dismiss the complaint. Their motion was granted, without prejudice, in this order. To begin, the court considered defendants’ argument that settled law expressly allows the use of forfeited employer contributions to reduce future employer contributions. First, the court agreed with Mr. Hutchins that IRS code Section 1.401-7(a) does not apply to defined contribution pension plans under ERISA, “a point that the Treasury Department has made clear in a subsequent revenue ruling.” Second, the court said that a proposed non-binding regulation from the Treasury Department did not foreclose Mr. Hutchins’ theory of liability as a matter of law. Next, the court found that defendants were acting as fiduciaries, rather than settlors, when deciding how to utilize the forfeited funds in the plan. The court understood this to be an implementation decision exercising control over plan assets, rather than a question of plan design, and therefore fiduciary in nature. Mr. Hutchins began running into problems when the court began evaluating his claims. It started with the breach of fiduciary duty claims. The parties agreed that the plan terms allow defendants to reduce employer contributions by using forfeited contributions. However, Mr. Hutchins avers that the use of these funds in this way is a breach under ERISA, meaning the plan terms are themselves in violation of the statute. The court noted that there is no binding authority addressing this theory, and nodded to Perez-Cruet as the only decision addressing a similar theory. To the court, the problem with Mr. Hutchins’ theory of liability was its “broad reach.” As the Supreme Court has stressed, ERISA fiduciary breach actions are “context specific.” Here, the court saw the allegations as “not limited to any particular circumstances that may be present in this case.” The court went on, “As pled, Plaintiff’s theory would require any fiduciary to use forfeited amounts to pay administrative costs regardless of any such context or circumstances. This broad allegation is implausible because it would improperly extend ERISA beyond its bounds and would be contrary to the settled understanding of Congress and the Treasury Department regarding defined contribution plans like the one at issue in this case.” The court noted that such a ruling would require in essence the creation of a benefit, i.e. payment of administrative costs, that the plan does not provide, which is beyond the scope of ERISA and not essential to its goal of protecting benefits. In sum, the court found “it is neither disloyal nor imprudent under ERISA to fail to maximize pecuniary benefits.” In the decision’s next section the court outlined why it does not believe the use of surplus plan assets is a violation of ERISA’s anti-inurement provision. The court did not feel that, even assuming participants in defined contribution plans have a right to contributions, they also have a right to forfeited amounts from the accounts of other participants. Thus, the court broadly rejected the idea that the forfeited contributions were plan assets to which “any participant is entitled.” Importantly, Mr. Hutchins did not allege that HP failed to meet its obligations to provide matching contributions to the plan. Therefore, the court found it implausible that the forfeited amounts inured to the benefit of HP. The court also dismissed the prohibited transaction claim because the Supreme Court has held that the payment of benefits is not a transaction under the prohibited transaction provision. Finally, the court dismissed the derivative duty to monitor claim. However, because of the novel nature of this action, the court stated that amendment may not be futile, and therefore granted Mr. Hutchinson leave to amend his complaint to address the deficiencies it identified in this order.

Mattson v. Milliman Inc., No. C22-0037 TSZ, 2024 WL 3024875 (W.D. Wash. Jun. 17, 2024) (Judge Thomas S. Zilly). Plaintiff Joanna Mattson, individually and on behalf of a class of participants of the Milliman, Inc. Profit Sharing and Retirement Plan, alleges that Milliman, Inc., its board of directors, and the plan’s committee breached their duties of prudence, loyalty, and monitoring under ERISA by including three proprietary funds in the plan: the Unified Trust Wealth Preservation Strategy Target Growth Fund, the Unified Trust Wealth Preservation Strategy Target Moderate Fund, and the Unified Trust Wealth Preservation Strategy Target Conservative Fund. The court held a bench trial in April, and in this order it entered its findings of fact and conclusions of law. The Wealth Preservation Strategy (WPS) Funds “are a suite of investment funds that seek to preserve capital and guarantee investors specified levels of risk through the application of a hedging strategy known as the Milliman Managed Risk Strategy.” The WPS Funds began underperforming in the fourth quarter of 2014, when the markets experienced a quick downturn, followed precipitously by an upturn (referred to as a “v-shaped market”). The v-shaped market caused things to go pear-shaped. The funds’ proprietary hedging strategies lagged behind the market recovery, meaning the WPS Funds stayed at the bottom of the v longer than their peers. While the markets were rebounding quickly, the WPS Funds had lower net equity positions because it took time for their hedging strategies to be removed. They therefore experienced “less upside capture.” This was particularly true of the growth fund. It was affected more by the recovery lag than moderate and conservative funds “because its equity allocation is higher.” And at that time, the growth fund was the default investment option in the plan. Thanks to the underperformance of the funds, which would continue for the next five years, the committee placed the funds on a watchlist and, after some time, changed the plan’s default investment option. The WPS Funds, however, were never removed from the plan, although they were eventually removed from the watchlist. Importantly, not only were the WPS Funds proprietary Milliman offerings, but both the trustee and the fund advisor were wholly-owned subsidiaries of Milliman. Ms. Mattson’s expert estimated that retaining the funds in the plan caused losses of over $54 million throughout the class period. Ultimately, the court disagreed. It concluded “the record simply does not support Mattson’s contention that the WPS Funds caused the Plan to suffer losses.” For a number of reasons, the court found that Ms. Mattson failed to establish either a procedural or substantive breach of the duty of prudence as “she has not shown that Milliman’s processes were unreasonable or that the WPS Funds were imprudent investments.” Ms. Mattson argued that the board did not engage in a prudent process to oversee and monitor the funds because it chose to delegate monitoring responsibilities to the committee while retaining for itself decision-making authority for the plan. But the court saw the advantages to the separation of responsibilities between the board and the committee. It wrote that defendants’ chosen structuring of assignments “enabled a group dedicated to monitoring tasks, i.e., the Committee, to engage in more careful, detailed, and frequent analyses than was possible for the Board.” Further still, the court noted that limiting the committee’s power afforded checks and balances “lest the Committee…have too myopic a view.” Therefore, the court held that this division of labor between the committee and board was consistent with, if not above and beyond, industry standards, and thus concluded that “the hallmarks of procedural prudence are present.” Additionally, the court was satisfied that a hypothetical prudent fiduciary would have reached the same decisions to retain the WPS Funds despite their five-year underperformance because that decision was “consistent with their long-term investment strategies designed to limit volatility and provide protection against losses in down markets.” As the court noted, “amidst the market downturns in 2020 and 2022, the WPS Funds have proven that they serve the purposes for which they were added to the Plan, protecting investors from experiencing large losses during periods of high volatility, while outpacing or closely tracking the performance of peer group funds.” Accordingly, the court concluded that Ms. Mattson failed to prove that retaining the funds was imprudent. Turning to the claims of disloyalty, the court found that Ms. Mattson could not establish that “Milliman acted with anything other than the best interests of Plan participants in mind.” It highlighted defendants’ choice to waive fees for the WPS Funds, the steps defendants took to mitigate conflicts, and the fact that the committee “did not hesitate” to designate a new investment option as the plan’s qualified default investment but did hesitate to remove the WPS Funds from the watchlist. Taken together, the court found these facts dispositive. Finally, because the court determined that Ms. Mattson failed to show any imprudence or disloyalty, it concluded that her derivative failure to monitor claim likewise failed. Thus, Ms. Mattson was unsuccessful and judgment was entered in favor of defendants on all claims.

Discovery

Sixth Circuit

First v. J&C Ambulance Servs., No. Civil Action 2:22-cv-3296, 2024 WL 3082640 (S.D. Ohio Jun. 21, 2024) (Magistrate Judge Kimberly A. Jolson). This is a Consolidated Omnibus Budget Reconciliation Act (COBRA) case revolving around a gap in the plaintiffs’ health insurance coverage. The plaintiffs bring claims under ERISA, FMLA, and Ohio disability discrimination law. At issue here was a discovery dispute between the parties. Specifically, defendant J&C Ambulance Services, Inc. moved to compel full and complete discovery responses and to compel plaintiffs to provide signed authorizations for the release of medical and billing records, as well as records related to any workers’ compensation claims. Although the plaintiffs acknowledge that much of the information J&C seeks is discoverable, they broadly opposed signing the releases and authorization forms, and argued that being compelled to provide signed authorizations is not required by the Federal Rules of Civil Procedure. The court began its discussion with the relevance of the records J&C sought. It went through each topic of documents – medical records, billing information, insurance records, and workers’ compensation records – and found the requests sufficiently narrow and the records relevant and discoverable under Rule 26. However, on certain matters the court was unclear whether plaintiffs had already produced all of the relevant documents and therefore instructed the parties to meet and confer on these issues. The court then addressed plaintiffs’ argument against the signed authorizations themselves. It noted that although plaintiffs are correct that the Federal Rules of Civil Procedure do not specifically authorize such relief, it stated that just because Rule 34 does not mandate releases does not preclude them altogether. Indeed, in some cases, this one included, the court viewed the use of releases to obtain medical records directly from healthcare providers to be “the most efficient and economical way…to obtain those records.” The court viewed plaintiffs’ proposed six-step solution as impractical and overly time consuming, particularly in light of the fact that they have failed to produce the records to date and the case has been pending for almost two years already. “It is clear the parties cannot make progress until J&C is in possession of the discoverable records. An efficient and economical solution is necessary and urgent at this point.” Accordingly, the court granted defendant’s motion to compel plaintiffs to sign the authorization forms. Nevertheless, the court was open to putting certain guardrails in place to protect the plaintiffs. It ordered the parties to discuss conditions such as defendants giving plaintiffs notice when they use the authorizations, producing copies of every document and record they receive from the healthcare providers, and certifying they are not withholding any documents received by the use of the authorizations.

Life Insurance & AD&D Benefit Claims

Second Circuit

Kyi v. 4C Food Corp., No. 22-CV-6301 (PKC) (LB), 2024 WL 3028954 (E.D.N.Y. Jun. 17, 2024) (Judge Pamela K. Chen). This case presents a series of very unfortunate circumstances beginning in 2019 when decedent Tun Win was diagnosed with severe early onset dementia and major neurocognitive disorder at just 51 years old. His wife, plaintiff Khin San Kyi, is a Burmese immigrant with limited English proficiency. In the midst of dealing with this terrible illness, Mr. Win requested Family and Medical Leave Act (FMLA) leave with his employer, 4C Foods Corp. 4C approved the FMLA leave. While Mr. Win while still on FMLA leave, his employer wrongly informed the Teamsters Local 277 Welfare Fund that Mr. Win “recently resigned.” Things went from bad to worse when the Fund sent a letter to the family informing Mr. Win that his employee benefits were cancelled and that he had 60 days to convert his group life insurance policy to an individual policy. This letter was mailed to an old address. Mr. Win and Ms. Kyi never received it. Ms. Kyi learned in the coming months that her husband’s illness was terminal. She then attempted to communicate with the Fund to inquire about Mr. Win’s benefits, but the Fund could not provide her with an interpreter who spoke her language. Months later, Ms. Kyi found a social worker who could translate for her and at this time she finally learned that Mr. Win’s benefits under the Fund had already been terminated months before. In response, Ms. Kyi hired an attorney to assist her in retaining life insurance coverage through the Fund in accordance with a waiver of premium total disability benefits. These benefits were denied because they required continuous disability benefits for nine months, and Mr. Win’s benefits had been cancelled before he had been totally disabled for nine continuous months. In April 2020 Mr. Win died. Ms. Kyi applied for life insurance benefits, but her claim was denied. She completed the administrative appeals process before bringing this pro se action on October 14, 2022 against 4C Foods, the Fund, and Amalgamated Life Insurance Company alleging claims for wrongful denial of benefits and breach of fiduciary duty under ERISA, promissory estoppel, interference with FMLA rights, and breach of contract. Defendants moved to dismiss. First, the Fund moved to dismiss for lack of subject matter jurisdiction. It argued that Ms. Kyi lacked Article III standing to sustain her claims. The court disagreed in part: “Though the Welfare Fund was not the entity responsible for paying out death benefits pursuant to the Policy, the Welfare Fund’s actions were fairly traceable to Plaintiff’s injury.” However, the court ultimately agreed with the Fund that Ms. Kyi did not have standing to bring claims against it because it cannot redress her injury due to insolvency. “As the Complaint itself alleges, due to ‘serious cashflow problems,’ the Welfare Fund ceased providing benefits as of June 2019. And on December 31, 2021, the Welfare Fund and the trust agreement that initially created it were both fully and finally dissolved.” Accordingly, the court recognized that the Fund has no money to pay a judgment even if the court issued one. Thus, the court concluded Ms. Kyi’s injuries could not be redressed by a favorable decision. As a result, all claims against the Fund were dismissed. This meant that Ms. Kyi’s benefits claim and her breach of fiduciary duty claim under ERISA were both dismissed, as they were only asserted against the Fund. The promissory estoppel claim asserted against the insurance company was also dismissed because the complaint did not allege that the insurer ever made any promise or engaged in any intentional inducement or deception. The FMLA interference claims were dismissed as well because Mr. Win received the maximum twelve weeks of leave allowed. Finally, the breach of contract claim was found to be preempted by ERISA. Accordingly, the court dismissed the entirety of Ms. Kyi’s action.

Medical Benefit Claims

Second Circuit

Kwasnik v. Oxford Health Ins., No. 22-CV-4767 (VEC), 2024 WL 3027924 (S.D.N.Y. Jun. 17, 2024) (Judge Valerie Caproni). In 2017, when she was 37 years old, plaintiff Fiana Kwasnik froze her eggs. She paid for the procedure herself. Years later, in 2021, Ms. Kwasnik wanted to get pregnant. At this time, she was a participant in an ERISA-governed healthcare plan insured by defendant Oxford Health Insurance, Inc. Ms. Kwasnik sought coverage for three procedures: (1) retrieval of more eggs (2021 retrieval); (2) fertilization of both oocytes that had been retrieved in 2017 and in 2021 through a process called intracytoplasmic sperm injection (ICSI); and (3) genetic testing on any resulting embryos. The plan expressly provides coverage for three cycles per lifetime of in vitro fertilization (IVF) and embryo storage for the treatment of infertility. In addition, New York law mandates that health insurance plans cover three rounds of IVF. Ms. Kwasnik’s claims for all three services were denied by Oxford. Oxford determined that none were medically necessary under the terms of the plan. It concluded that a new round of egg retrieval was not medically necessary at that time because Ms. Kwasnik had viable eggs from 2017. The denial specified that Ms. Kwasnik could undergo new egg retrievals (a maximum of three) if she could not successfully become pregnant from implantation of the 2017 eggs. In addition, the plan denied coverage for the ICSI method of implantation of the 2017 embryos and the genetic testing of the embryos because neither Ms. Kwasnik nor her partner had a genetic condition or abnormal genes. Ms. Kwasnik challenged the denial of benefits for her fertility treatments in this action. The parties filed cross-motions on the one remaining cause of action under Section 502(a)(1)(B). In this decision the court granted judgment to Oxford under arbitrary and capricious review. At the outset, the court disagreed with Ms. Kwasnik that the denial of her claims should be reviewed de novo because Oxford violated the Department of Labor’s claims procedures. First, the court stated that Ms. Kwasnik did not include the letter she claims she sent Oxford requesting documents in the administrative record. “Because there is no evidence in the record that Plaintiff ever requested her claim file, Plaintiff has not made an initial showing that Oxford violated this regulation.” Second, the court concluded that Ms. Kwasnik’s assertions that Oxford failed to consider information she submitted in support of her appeal, and that it retained the same doctors to review the appeal as those who denied the claim, were factually inaccurate. For these reasons, the court reviewed the denials under the abuse of discretion standard in light of the grant of discretionary authority. Under the highly deferential review standard, the court could not say that the denials were an abuse of discretion. It found that the plan was not violating ERISA’s or New York’s mandates by denying coverage of a fresh egg retrieval while viable eggs existed from the 2017 retrieval. In addition, the court agreed with Oxford that substantial evidence supported its medical necessity conclusions with regard to the ICSI implantation and genetic testing of the embryos. Accordingly, the court upheld the denials and granted judgment in favor of Oxford.

Pension Benefit Claims

Second Circuit

Purcell v. Scient Fed. Credit Union, No. 3:22-CV-961 (VDO), 2024 WL 3059640 (D. Conn. Jun. 20, 2024) (Judge Vernon D. Oliver). Plaintiff David Purcell was the Chief Executive Officer of Scient Federal Credit Union (SFCU) from June 2015 to March 2020. Because of his employment and position, Mr. Purcell participated in a “split dollar” retirement plan. Mr. Purcell was the sole participant in the plan, and SFCU’s board of directors was the plan’s designated administrator and fiduciary. How the plan works is a bit complicated. SFCU took out a life insurance policy on Mr. Purcell and paid premiums on the policy. SFCU will be paid back out of the death benefit for the premiums it paid plus interest when the proceeds are eventually paid. Mr. Purcell is entitled to borrow under the plan upon reaching retirement age or, as relevant here, in the event Purcell is terminated due to a disability. The plan defines disability as the Social Security Administration determining that Mr. Purcell is totally disabled. Finally, the plan outlines its vesting schedule and the dates the benefits vest, increasing in 33% intervals from 0-100%. In 2017, Mr. Purcell disclosed to the company that he had been diagnosed with Parkinson’s disease. Over the next three years his disease progressed with “increasing expression of the symptoms,” evident to those around him. SFCU began looking for a successor CEO while Mr. Purcell’s disorder progressed. On March 16, 2020, SFCU terminated Mr. Purcell, stating, “We are going in a different direction.” Mr. Purcell applied for benefits under the plan. He maintained that he is entitled to 100% of vested benefits, as he was fired as a result of his disability. SFCU denied the claim, asserting that Mr. Purcell was only vested in one-third of the annual borrowing cap. Notably, SFCU’s termination occurred shortly before Mr. Purcell’s vesting, regardless of disability, was scheduled to rise from 33% to 67%. Mr. Purcell received a diagnosis of total disability from the Social Security Administration, and with the help of his attorney, appealed the adverse benefit determination. Although it had ample opportunity to do so, SFCU did not respond to Mr. Purcell’s notice of claim by the due date. In this action, Mr. Purcell seeks a court order overturning SFCU’s decision. He asserted claims under Sections 502(a)(1)(B) and (a)(3). On July 21, 2023, Mr. Purcell moved for summary judgment on his benefits claim. His motion was granted in this order. Before doing anything else, the court decided that de novo review was applicable. It stated that the plan did not clearly grant discretionary authority and defendants failed to comply with the Department of Labor’s claims procedure regulations. The court then found that the administrative record showed that Mr. Purcell’s employment was terminated because of his disability. Under the McDonnell Douglas burden-shifting framework, the court was satisfied that Mr. Purcell established a prima facie case of unlawful termination. The court held that Mr. Purcell had a disability as defined by the plan, that he was qualified for his position, and that the sequence of events leading up to and the timing of Mr. Purcell’s termination gave rise to an inference of discrimination. In light of the fact that Mr. Purcell was terminated while his disease was progressing, and given the timing of the termination just months before benefits would have vested, resulting in substantial cost savings for the company, the court was satisfied that Mr. Purcell showed discriminatory intent. Further, the court held that SFCU failed to produce any admissible evidence to articulate a legitimate non-discriminatory explanation for the decision to terminate Mr. Purcell. Thus, the court said, “there is no basis in the administrative record for a factfinder to conclude that there was any other reason for the termination.” Accordingly, the court granted Mr. Purcell judgment in his favor, and as a result, the denial of his benefit claim was vacated and Mr. Purcell was awarded benefits, plus prejudgment interest.

Pleading Issues & Procedure

Third Circuit

Carr v. Abington Mem’l Hosp., No. Civil Action 23-1822, 2024 WL 3032893 (E.D. Pa. Jun. 17, 2024) (Judge Harvey Bartle III). Plaintiff Alice Carr filed this action alleging she is due pension benefits under the Thomas Jefferson University Defined Benefit Plan pursuant to Section 502(a)(1)(B), and that Thomas Jefferson University, as administrator of the plan, withheld documents from her in violation of Section 502(c)(1). Thomas Jefferson did not file an answer to Ms. Carr’s complaint until five-and-a-half months after it was due under the court’s scheduling order. Given this delay, Ms. Carr moved to strike Thomas Jefferson’s untimely answer to her complaint. In this decision the court denied her motion. It concluded that the tardiness in filing was the result of excusable neglect. “Defendants’ untimely filing, as candidly stated by their attorney, was a result of his honest oversight. At the time the answer was due, he was out of the office because he was recovering from COVID-19. When he returned to the office, he neglected to follow up. There was certainly no bad faith.” Moreover, the court found that Ms. Carr was not prejudiced by the delay, that the delay had little judicial impact, and no costs were incurred as a result of it. Based on the foregoing, the court did not feel it was right to grant the motion to strike defendants’ untimely answer to the complaint.

Tenth Circuit

Finley v. Reliance Standard Life Ins. Co., No. CIV-23-967-PRW, 2024 WL 3013841 (W.D. Okla. Jun. 14, 2024) (Judge Patrick R. Wyrick). In 2007, plaintiff Jill Finley suffered a hypoxic brain injury and was in a coma for several weeks. Miraculously, Ms. Finley regained consciousness, but the brain injury caused lasting and likely permanent effects. As a result, Ms. Finley has been receiving long-term disability benefits ever since under a policy provided by Reliance Standard Life Insurance Company. This action arises from events that occurred in 2022 and 2023. First, on April 14, 2022 Reliance Standard terminated Ms. Finley’ benefits. In response, Ms. Finley hired the law firm of Durbin, Larimore & Bialick to assist her in overturning this decision. The law firm did just that. In January 2023, Reliance reversed its decision and reinstated Ms. Finley’s benefits. Counsel requested that Reliance pay attorneys’ fees and costs associated with preparing and filing a request for review of the termination decision. Reliance declined to do so. Then in April 2023, Ms. Finley filed a request for financial hardship relief under the plan, requesting reimbursement of deductions made by Reliance Standard based on her receipt of Social Security disability benefits. Reliance denied that request as well, prompting this action wherein Ms. Finley alleged claims under ERISA Sections 502(a)(1)(B) and (a)(3) stemming from the harm of Reliance’s refusal to pay attorneys’ fees and its deductions of Social Security disability benefits from her monthly long-term disability payments. Reliance moved to dismiss for failure to state a claim. Its motion was granted and the action was dismissed with prejudice. First, the court concluded that Ms. Finley’s request for attorneys’ fees relating to pre-litigation administrative appeals proceedings “are not compensable under ERISA, even in the form of an equitable surcharge.” The court emphasized that Section 1132(g) omits any reference to fees incurred during administrative proceedings, and stated that “legislative choice must be given effect.” Therefore, the court held that Ms. Finley could not state a claim for relief under either Section 502(a)(1)(B) or (a)(3) for attorneys’ fees and costs associated with pre-litigation work. Next, the court concluded that Ms. Finley could not sustain her claims based on the deductions because Reliance’s deduction of Social Security disability benefits from Ms. Finley’s monthly long-term disability payments “was and is in accord with the terms of the benefit plan, not a breach of fiduciary duty.” Therefore, the court agreed with Reliance that Ms. Finley failed to plausibly plead a claim relating to the benefit deductions. Finally, the court dismissed claims based on Reliance’s failure to provide requested documents in the course of the administrative appeal because “no concrete harms result[ed] from these alleged breaches.” The action was therefore dismissed, and because the court concluded that amendment would be futile, dismissal was with prejudice.

Provider Claims

Second Circuit

Gordon Surgical Grp. v. Empire Healthchoice HMO, Inc., No. 1:21-cv-4796-GHW, 2024 WL 3012637 (S.D.N.Y. Jun. 12, 2024) (Judge Gregory H. Woods). The plaintiffs in this action are three small affiliated surgery practices which provided healthcare services to 126 patients covered under 72 different health insurance plans insured by defendant Empire Healthchoice HMO, Inc. In their lawsuit, the providers allege federal and state law causes of action, including claims under ERISA, seeking over $1 million in reimbursement of charges for 291 medical claims. The imbalance between the parties is striking. The plaintiff providers are now out of active practice, “in part, due to Empire’s failure to make payment for their services,” while Empire is “a multi-billion dollar company.” The surgery practices argued that Empire’s denials and nonpayment for claims were done broadly and commonly, and that many of the plans at issue “include substantially similar or identical boilerplate provisions utilized by Empire nationwide.” They therefore contend that their claims are properly joined together into this single action. However, as our readers likely know, ERISA was not designed with healthcare providers in mind, and it has therefore never functioned particularly well for them. It is unsurprising then that the plaintiffs here have faced difficulties in proceeding with their action. Their case was dismissed previously by the court without prejudice. When the court granted plaintiffs’ motion for leave to amend, it was concerned that plaintiffs’ claims had been improperly joined into a single action. Therefore, the court issued an order to show cause why it “should not dismiss all claims except those by a single plaintiff involving one singular ERISA healthcare plan, without prejudice to refiling each of Plaintiffs’ claims involving different health insurance plans in separate civil actions.” Plaintiffs responded and argued why they believed misjoinder of parties did not apply and why filing new lawsuits would frustrate them and not promote judicial economy. The matter was assigned to a magistrate judge who issued a report and recommendation recommending plaintiffs be permitted to replead and include claims with common plan terms and overlapping witnesses. Empire objected to the magistrate’s report and proposed narrowing it further to apply only to plans of the same employer/plan sponsor issued the same year. In this decision the court agreed with Empire and narrowed the subset accordingly. It concluded that permitting joinder of only claims involving one singular ERISA healthcare plan in a singular year “will better serve the interests of judicial economy, as well as ensuring that the surviving claims are logically related – involving the same transaction or occurrence, or common questions of law or fact.” The court acknowledged the burden its decision will place on the plaintiffs, including the fact it will force them to file nearly 50 different lawsuits, but nevertheless stressed that civil litigants are not permitted “to glom together numerous disparate claims just because it saves them money. The Federal Rules of Civil Procedure apply notwithstanding any party’s financial means.” While the court noted that it viewed the magistrate’s proposal as thoughtful, considered, and well-reasoned, it nevertheless agreed with Empire that the report rested on a faulty assumption that “the plan terms would remain the same from year to year.” The court further feared that adopting the magistrate’s proposed approach would prolong litigation and determined that narrowing the scope of the joined claims further would permit it to adequately examine questions of exhaustion, standing, and timeliness. Thus, the court concluded that plaintiffs could not consolidate their 291 claims into a single federal action and stated that any fallout from the ruling is fundamentally a result of their own “strategic decision to improperly join disparate claims – not the fact that their effort was uncovered.”

Ninth Circuit

The Discovery House LLC v. Cigna Corp., No. 2:22-CV-1418-DOC-JDE, 2024 WL 3086554 (C.D. Cal. Jun. 12, 2024) (Judge David O. Carter). Four out-of-network substance use disorder treatment providers and clinical laboratories bring this action against Multiplan Inc., Viant, Inc., Cigna Corporation, Cigna Health and Life Insurance Company, Connecticut General Life Insurance Company, Cigna Behavioral Health, Inc., and Cigna Health Management, Inc. for failure to fully reimburse claims for healthcare treatment. In the operative complaint plaintiffs assert seven causes of action; (1) claims for plan benefits under ERISA Section 502(a)(1)(B); (2) breach of written contract; (3) breach of implied covenant of good faith and fair dealing; (4) breach of implied contract; (5) breach of oral contract; (6) promissory estoppel; and (7) unfair competition. Defendants moved to dismiss. Their motion was granted in part and denied in part in this order. The court began with the ERISA benefit claims. It held that plaintiffs have standing as assignees of their patients, that Multiplan is a proper ERISA defendant because plaintiffs alleged that it was exercising fiduciary authority over benefit determinations, that plaintiffs properly alleged breach of plan terms and that they were underpaid benefits owed under the plan, and that exhaustion would be futile. The court therefore entirely denied the motion to dismiss the ERISA claims. Next, the court concluded that plaintiffs plausibly alleged their breach of express written contract claim. It stated the complaint plausibly alleges that a contract existed, the providers performed and honored the terms of the contract, the defendants breached the contract by not paying according to the promised rates, and that the providers suffered a loss as a result of the alleged breach. However, the court dismissed the claims for breach of the implied covenant of good faith and fair dealing, breach of implied contract, and breach of oral contract, finding them redundant of, and overlapping, the breach of contract claim. As for the promissory estoppel claim, the court found that plaintiffs adequately alleged a clear and unambiguous promise and assurance that defendants would pay. Therefore, the court denied the motion to dismiss the promissory estoppel claim. Plaintiffs’ last claim for violation of California’s Unfair Competition Law was dismissed, however, as the court determined that the equitable relief plaintiff sought is “secured through [their] other causes of action.” Finally, to the extent plaintiffs’ state law claims relate to health insurance plans governed by ERISA, the court noted plainly that they are preempted by ERISA and thus dismissed them with prejudice.

It seems the courts had summer holiday plans this week, and as a result no decision stood out to us as particularly notable. There were, however, several cases worthy of a light beach read, including one involving an ex-wife seeking to garnish her ex-husband’s 401(k) plan account based on a defamation judgment against him, a titillating discussion of modifying clauses in a severance benefit action (“Syntacticians, grab your popcorn”), and the tale of a court significantly reducing an already piddly statutory benefit award down to peanuts. We hope you enjoy these summaries, and all the rest, along with any Juneteenth and summer solstice celebrations.

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

Breach of Fiduciary Duty

Seventh Circuit

Russell v. Illinois Tool Works, Inc., No. 22 C 2492, 2024 WL 2892837 (N.D. Ill. Jun. 10, 2024) (Judge Sunil R. Harjani). Retirement plan participants brought this action alleging Illinois Tool Works, Inc., its board of directors, and the employee benefits investment committee breached their duties of prudence and monitoring by mismanaging the plan, investing in chronically underperforming target date funds, and paying excessive costs for standard recordkeeping services. Defendants moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and (6). Defendants argued that one of the named plaintiffs’ claims should be dismissed for lack of subject-matter jurisdiction due to a release in his employment separation agreement. In addition, they challenged the sufficiency of the pleading of what they characterized as “Plaintiff’s generic recordkeeping, generic investment, and derivative monitoring claims.” The court rejected all of defendants’ arguments. First, the court elucidated, “[a] release is not a challenge to subject-matter jurisdiction, but instead an affirmative defense.” It expanded upon this by saying that analyzing whether the release covers the asserted claims, whether it is valid, and whether the plaintiff knowingly and voluntarily entered into it are all factual determinations not properly resolved on a motion to dismiss. Next, the court probed the sufficiency of plaintiffs’ claims. Broadly, it found that plaintiffs’ fee and fund allegations align closely with those alleged in Hughes v. Northwestern University, which were blessed by the Seventh Circuit. As in Hughes, the court found the complaint alleged “enough facts to show that a prudent alternative action was plausibly available.” Thus, the court was satisfied that plaintiffs did enough to lay out plausible imprudence claims. Finally, the derivative duty to monitor claim, which was predicated on the breach of fiduciary duty of prudence claim, also survived the motion to dismiss.

Class Actions

Eleventh Circuit

Goodman v. Columbus Reg’l Healthcare Sys., No. 4:21-cv-00015-CDL, 2024 WL 2963441 (M.D. Ga. Jun. 12, 2024) (Judge Clay D. Land). Participants of the Columbus Regional Healthcare System Retirement Savings Plan brought this class action alleging that the plan’s fiduciaries breached their fiduciary duties and engaged in prohibited transactions by failing to control and properly monitor the plan’s investment options, investment costs, and administrative expenses. For the past two-and-a-half years, this case has been “vigorously litigated.” Plaintiffs survived two motions to dismiss, the parties engaged in extensive discovery, the class was certified by the court, and the experts produced and exchanged their reports. All of this effort led to a mediation “conducted by an experienced trial lawyer and mediator,” which resulted in agreed terms to settle the action for $2 million. The court previously issued an order preliminarily approving the parties’ proposed settlement. Notices were then distributed to the 6,789 class members, and a fairness hearing was held. Pending before the court here were the parties’ joint motion for final approval of the settlement, and plaintiffs’ unopposed motion for attorneys’ fees, costs, and class representative service awards. In this order, the court granted final approval to the settlement, and awarded plaintiffs their requested fee award of one-third of the fund, as well as $175,315.29 in costs. However, the court denied the motion for service awards to the class representatives pursuant to binding precedent from the Eleventh Circuit prohibiting incentive awards to compensate class representatives for their time and effort bringing a lawsuit. With regard to the settlement itself, the court found that each core concern of Rule 23(e)(2) was satisfied. It determined that the $2 million fund was adequate, fair, and reasonable, and the result of informed good faith and arms-length negotiations. The court noted the work done to date on this complex ERISA matter, the uncertainty of the results ahead should the proposed settlement not go through, and found the pro rata distribution to the class members equitable, efficient, and rational. Further, the court accepted the $55,000 in settlement administration fees and the creation of a charitable fund for any unclaimed settlement funds “provided the unclaimed funds do not exceed $75,000.” Finally, the court was satisfied that attorneys’ fees totaling $666,666.66 (one-third of the gross settlement amount) were appropriate and in line with comparable awards in similar cases, especially given the more than two thousand hours class counsel spent on this complex ERISA class action, the attorneys’ specialized skills and expertise, and the fact that they accepted the case on a contingency. For these reasons, the court granted final approval to the settlement and awarded the attorneys their requested fees and costs.

Disability Benefit Claims

First Circuit

Demeritt v. Unum Life Ins. Co. of Am., No. 23-cv-00035-JL, 2024 WL 2990553 (D.N.H. Jun. 7, 2024) (Judge Joseph N. Laplante). Plaintiff Jay Demeritt commenced this action to challenge Unum Life Insurance Company’s denial of his claim for long-term disability benefits. Unum determined that Mr. Demeritt did not qualify for benefits after its reviewing neurologist concluded that his “self-report of narcolepsy was not consistent with the medical evidence.” The parties filed cross-motions for judgment on the administrative record. As an initial matter, the parties disagreed about the appropriate standard of review. The court declined to rule on which position was correct, as it determined that even under the more plaintiff-friendly de novo standard the record does not support that Mr. Demeritt satisfied the policy’s definition of disability to prove he was unable to perform his sedentary profession. Importantly, the court disagreed with Mr. Demeritt that his job as a systems administrator/network engineer in the national economy requires either driving or climbing ladders and lifts, and thus concluded that these were therefore not material and substantial duties of his work. Further, the court noted that Mr. Demeritt was first diagnosed with narcolepsy in 1999 and that he has been taking the same medication on the same dose as early as 2018, all while employed and performing the same job. In addition, the court agreed with Unum’ reviewing neurologist that it was significant that Mr. Demeritt’s medical record lacked “formal mental status testing, as might be seen when cognitive complaints are a significant clinical concern.” The court was thus persuaded that Mr. Demeritt’s symptoms did not warrant the work restrictions recommended by his treating doctors. Therefore, the court concluded Mr. Demeritt did not establish his entitlement to long-term disability benefits by a preponderance of the evidence. For these reasons, the court entered judgment in favor of Unum and affirmed its denial of benefits.

Ninth Circuit

Drake v. Lincoln Nat’l Corp., No. CV-22-08230-PCT-SPL, 2024 WL 2942695 (D. Ariz. Jun. 10, 2024) (Judge Steven P. Logan). Plaintiff Susan Drake stopped working and went on long-term disability benefits in the summer of 2020 due to a foot injury. Lincoln National Corporation, the administrator of Ms. Drake’s long-term disability policy, approved her claim for benefits and began issuing her payments. She then underwent foot surgery to treat the injury. Following the procedure, her surgeon concluded that the torn tendons had healed, and that Ms. Drake had recovered well and could return to work. At the same time, the surgeon noted that Ms. Drake had an underlying foot deformity which had likely caused the injury in the first place, and opined that the deformity may cause her continued pain and disability. Although the surgeon discussed additional surgery to correct the foot deformity, Ms. Drake declined to proceed with the reconstructive surgery at that time. Based on the treating doctor’s statements that the surgery was successful and Ms. Drake could resume work, Lincoln terminated her disability benefits. Ms. Drake initiated this action seeking a court review of Lincoln’s decision. In this ruling, the court reviewed the denial and upheld it under deferential review of the administrative record. The court commented on Lincoln’s structural conflict of interest and on certain procedural errors, including its failure to provide Ms. Drake with the correct phone number and its failure to wait for a response from her surgeon. However, the court only applied “a moderate amount of additional skepticism required by Defendants’ structural conflict of interest,” and expressed that it did not view the procedural violations to be wholesale, flagrant, or egregious. As for the denial itself, the court concluded that the medical record reflected improvement, given Ms. Drake’s post-surgery visit and the opinions of her surgeon that she had healed and was ready to resume working. Although the treating surgeon later clarified that he believed Ms. Drake remained disabled due to her foot deformity, the court nevertheless agreed with Lincoln that the doctor’s change in opinion without any support in the medical records or further visits did not require a finding of ongoing disability. Accordingly, the court found Lincoln’s denial reasonable and supported by substantial evidence. The court therefore affirmed Lincoln’s determination. Finally, the court addressed Ms. Drake’s statutory penalties claim for failure to provide a copy of her claim file. The court concluded that a claim file is not considered a plan document for the purposes of the relevant statute and therefore rejected Ms. Drake’s request for statutory damages.

ERISA Preemption

Third Circuit

Burns v. Cooper, No. 23-5090, 2024 WL 2980220 (E.D. Pa. Jun. 13, 2024) (Judge Juan R. Sanchez). In 2019, plaintiff Jamiylah Burns obtained a $75,000 judgment in Pennsylvania state court against her ex-husband, defendant Blakely Cooper, in a defamation action. Mr. Cooper has not paid anything on the judgment, and has claimed he is unable to do so. Mr. Cooper is a participant in the Pfizer Inc. 401(k) plan, so Ms. Burns brought this garnishment action to collect money held in the plan belonging to Mr. Cooper. Pfizer moved to dismiss the action for failure to state a claim upon which relief can be granted. The company argued that the funds are exempt from garnishment and execution under ERISA’s anti-alienation provision, Section 206(d)(1). The court agreed and granted the motion. While the court acknowledged that there are limited exceptions to the anti-alienation provision, it wrote, “the Supreme Court has made clear that approval of any generalized equitable exceptions to the anti-alienation provision are not appropriate.” Ms. Burns argued that Mr. Cooper’s 401(k) contributions were part of a fraudulent scheme to hinder payment to her, his creditor, and therefore a violation of Pennsylvania’s Uniform Voidable Transactions Act. The court however, stated that the Act defines “transfer” as modes of disposing or parting with assets or an interest in assets, and even assuming for argument’s sake the Act is not preempted by ERISA, Ms. Burns misunderstands the Act because Mr. Cooper is not parting or disposing of any assets, but rather transferring his own money from one place to another. Accordingly, the court concluded that Ms. Burns could not state a claim. “Nor does Burns qualify for relief under the Pennsylvania state provision governing exemptions of property of a judgment debtor from garnishment and attachment,” because, “in addition to the protection against garnishment and execution provided under ERISA, Cooper’s Pfizer 401(k) account is similarly exempt under § 8124 of Pennsylvania’s Title 42.” Based on the foregoing, the court agreed with Pfizer that Ms. Burns could not sustain any of her claims, and therefore granted its motion to dismiss. Finally, the court permitted Pfizer to file a motion for attorneys’ fees under ERISA Section 502(g)(1) and granted it leave to do so.

Sixth Circuit

Roberts v. Life Ins. Co. of N. Am., No. 24-27-DLB-CJS, 2024 WL 2980780 (E.D. Ky. Jun. 13, 2024) (Judge David L. Bunning). Plaintiff Patricia Roberts purchased life insurance policies for herself and her husband through her employer, Madonna Manor. The policies were insured by Life Insurance Company of North America (LINA). Ms. Roberts’ husband died in 2022, after which LINA paid only a fraction of the amount of benefits that Ms. Roberts thought she should receive. Ms. Roberts filed an action in Kentucky state court (Roberts I) alleging that LINA, Madonna Manor, and its parent company, CHI Living Communities, violated Kentucky state law. Defendants removed that action to federal court asserting ERISA preemption and federal question jurisdiction. Ms. Roberts argued that the plan is a church plan, exempted from ERISA. The presiding judge disagreed, found that the plan is governed by ERISA, and that the state law claims were preempted. However, because Ms. Roberts did not include ERISA claims in her original complaint, the court dismissed the action without prejudice, should she wish to amend her complaint to plead claims under ERISA. Instead, Ms. Roberts filed the instant action, again in state court. Defendants removed the action to federal court. Now they move to dismiss the state law claims and to strike Ms. Roberts’ jury trial demand. Both motions were granted in this order. First, the court agreed with defendants that the issue of whether the policy qualified for ERISA’s church plan exemption was already decided and re-litigation is barred under the doctrine of issue preclusion. It stressed that the court in Roberts I reached the merits of the issue of ERISA preemption in its order on the motions to dismiss and that the dismissal of the state law claims in Roberts I “constituted a final judgment on the issue of whether the church plan exemption applies to Plaintiff’s claims,” adding, “[t]his is a legal question, and no further amendments to the complaint would change this outcome.” Accordingly, the court reaffirmed the Roberts I rulings and dismissed the state law claims as preempted by ERISA. Thus, Ms. Roberts may proceed only on her ERISA causes of action. The decision ended with the court quickly granting the motion to strike the demand for a jury trial as Sixth Circuit precedent forecloses jury trials in ERISA benefit cases.

Ninth Circuit

Emsurgcare v. United Healthcare Ins. Co., No. 2:24-cv-03654-SB-E, 2024 WL 2892319 (C.D. Cal. Jun. 7, 2024) (Judge Stanley Blumenfeld, Jr.). Two emergency healthcare providers, plaintiffs Emsurgcare and Emergency Surgical Assistant (ESA), provided emergency healthcare in June of 2020 to a patient insured by defendant United Healthcare Insurance Company. Emsurgcare billed $60,000 for its services, and ESA billed $59,000 for the medical services it provided. United paid less than $1,700 on Emsurgcare’s claim, and nothing at all on ESA’s claim. The providers have been challenging United’s reimbursement determination ever since. In an earlier case, the two providers, along with the insured patient, filed a complaint in state court against the insured’s employer alleging claims for failure to pay benefits under ERISA and for quantum meruit. The employer removed that case to federal court. After removal, plaintiffs amended their complaint bringing the same two claims against United rather than the employer. The court then dismissed the amended complaint and gave plaintiffs another opportunity to amend. Rather than amend their complaint, plaintiffs voluntarily dismissed their claims without prejudice and then filed this new action in state court, without the patient, alleging only the state law quantum meruit claims against United. The new action was removed to federal court by United, which invoked both diversity and federal-question jurisdiction. The providers then moved to remand, and United moved to dismiss. In this decision the court granted plaintiffs’ motion to remand, concluding United failed to meet its heavy burden to show that the court has jurisdiction. First, the court concluded that it lacked diversity jurisdiction because the amount of damages for each plaintiff is less than $75,000. The court declined to aggregate the amounts of plaintiffs’ claims, stating that although they are closely related, they are distinct and independent of one another. Second, the court determined that the quantum meruit claims are not completely preempted, finding the second prong of the Davila preemption test dispositive. The court held that plaintiffs’ claims “unambiguously assert an entitlement to recovery that is based on an independent legal duty – namely, the obligation imposed by California’s Knox-Keene Act on ‘health care service plans’…to reimburse medical providers for the reasonable costs of emergency medical services.” This was true, the court held, notwithstanding the fact that plaintiffs could have also asserted their assigned ERISA rights. Thus, the court agreed with the providers that their complaint invokes a right to recovery based on an independent legal duty, meaning their quantum meruit claims are not completely preempted by ERISA. Accordingly, the court granted their motion to remand.

Exhaustion of Administrative Remedies

Second Circuit

Murphy Med. Assocs. v. 1199SEIU Nat’l Benefit Fund, No. 23 Civ. 6237 (DEH), 2024 WL 2978306 (S.D.N.Y. Jun. 12, 2024) (Judge Dale E. Ho). Plaintiffs Murphy Medical Associates, LLC, Diagnostic and Medical Specialists of Greenwich, LLC, and Steven A.R. Murphy initiated this action against the 1199SEIU National Benefit Fund seeking payment for COVID-19 testing. Originally filed in the District of Connecticut, this action was transferred to the Southern District of New York by virtue of the plan’s forum selection provision. After successfully obtaining a transfer, the benefit fund moved to dismiss the action, arguing among other things that the providers failed to exhaust administrative remedies before filing suit. The fund’s motion was granted by the court, without prejudice. Plaintiffs subsequently amended their complaint, and defendant once again moved for dismissal. In this decision the court granted the motion to dismiss, and this time dismissed plaintiffs’ action without leave to amend. The court agreed with the fund that plaintiffs failed to plausibly allege that they followed the plan’s procedures to exhaust administrative remedies prior to filing suit. While the court recognized that the failure to exhaust is an affirmative defense, it nevertheless found it clear, both from the face of the complaint and from plaintiffs’ arguments in response to defendants’ motion, that plaintiffs simply did not do so. Moreover, the court concluded that plaintiffs failed to make a clear and positive showing that exhaustion would be futile, particularly in light of the fact that many of their claims were in fact approved and reimbursed by the Fund. Given these circumstances, the court held that plaintiffs’ failure to follow the plan’s administrative appeals process prior to commencing civil litigation warrants dismissal. Finally, the court declined to permit the providers to amend their pleadings a second time, as it felt they failed to cure the original complaint’s deficiencies and because the providers “decline to explain how they intend to cure any deficiencies with their pleadings.” Therefore, the court did not see any value in permitting further opportunities to amend and concluded that doing so “is unlikely to be productive.” Accordingly, the case was dismissed with prejudice.

Medical Benefit Claims

Ninth Circuit

Oneto v. Watson, No. 22-cv-05206-AMO, 2024 WL 2925310 (N.D. Cal. Jun. 10, 2024) (Judge Araceli Martinez-Olguin). Plaintiff Roy J. Oneto is a former employee of a winery in Napa, California. While employed at the winery Mr. Oneto was a participant in his employer’s self-funded health benefit plan. Mr. Oneto was reliant on his health insurance to pay for two surgeries he needed to treat an esophageal medical condition called Zenker’s diverticulum. Defendant Cigna Health and Life Insurance Company administered the medical benefits for the welfare plan. Cigna covered the cost of Mr. Oneto’s first surgery. But when Mr. Oneto required a second surgery to treat the pouch remaining in his throat he encountered issues. Cigna declined the surgeon’s preauthorization request, concluding that the surgical procedure was not medically necessary and was experimental/investigational. Because medical coverage for the surgery was not approved prior to the date it was scheduled, Mr. Oneto had to cancel his procedure. Shortly thereafter, his employment at the winery ended. Eight months later, Oneto eventually underwent the revision surgery, with coverage for the procedure provided under a plan established by his new employer. In this action, Mr. Oneto brings claims arising from the denial of the surgery against Cigna, its affiliated management services company, Cigna Health Management, Inc., and the medical director for Cigna, Dr. Melvin Watson. In the operative complaint, Mr. Oneto includes ERISA claims for breach of fiduciary duties and failure to discharge duties under the plan, and state law claims for non-fiduciary violations under California insurance laws, as well as a state law medical negligence claim against Dr. Watson. Defendants moved to dismiss all the non-ERISA claims pursuant to Federal Rule of Civil Procedure 12(b)(6). Their motion was granted in this decision. The court first discussed the medical negligence claim. Mr. Oneto alleged that Dr. Watson negligently determined that his surgery was experimental and not medically necessary, which directly led to the determination that the surgery was not covered under the plan. Defendants argued that these allegations are completely preempted by ERISA. The court agreed. First, it found that Mr. Oneto could have brought a claim seeking benefits under the plan under ERISA Section 502(a)(1)(B) to challenge the denial. Second, the court determined that the medical negligence claim flowed directly from the plan as “Dr. Watson was a Cigna employee and was acting in that capacity when he asked to evaluate Cigna’s coverage position with respect to Oneto’s surgery.” Accordingly, the court disagreed with Mr. Oneto that his medical negligence claim arose independently of ERISA or the terms of his benefit plan, and therefore found that Mr. Oneto’s medical negligence claim satisfies both prongs of the Davila preemption test. The court then evaluated Mr. Oneto’s claims alleging non-fiduciary violations of California’s Health and Safety Code. It found that defendants are not subject to the sections of the Health and Safety Code that Mr. Oneto cites as the Cigna defendants are neither health maintenance organizations nor managed care organizations. The court noted that the plan is fully self-funded by the employer, and Cigna’s role in the plan is to administer the benefits. Accordingly, the court agreed with defendants that Mr. Oneto could not sustain his claims for violations of obligations arising under the Health and Safety Code because that code does not apply to them. Based on the foregoing, the court granted defendants’ motion to dismiss the non-ERISA causes of action.

Pleading Issues & Procedure

Third Circuit

Kayal v. Cigna Health & Life Ins. Co., No. 23-03808, 2024 WL 2954283 (D.N.J. Jun. 12, 2024) (Judge Jamel K. Semper). On June 28, 2022, patient John D. underwent surgery at Hudson Regional Hospital. The surgery was performed by one of Kayal Medical Group, LLC’s surgeons. At the time of the surgery John D. was insured through his employer, PMI Global Services, Inc., which sponsored a group healthcare plan administered by Cigna Health and Life Insurance Company. Kayal Medical Group billed Cigna $140,600 for the cost of the procedure, but Cigna reimbursed only $1,759.17. The provider appealed the reimbursement decision and then eventually initiated this action in state court. Cigna removed the case to federal court, and the provider filed an amended complaint as attorney-in-fact for John D. to recover the unpaid benefits under ERISA. Cigna moved to dismiss. It was undisputed that the plan contains an unambiguous anti-assignment provision foreclosing derivative standing. Nevertheless, plaintiff Robert Kayal contended that he has standing because John D. executed a valid power of attorney. However, the court ruled that Mr. Kayal’s standing argument failed because he did not provide evidence that the power of attorney was sufficient to confer standing, as the complaint “does not provide further details regarding the document, its execution, or relevant witnesses.” The court was further concerned that the individual who notarized the power of attorney was acting as both officer and witness. Finally, to the extent that the power of attorney purports to appoint Mr. Kayal the individual and Kayal Orthopedic Center as attorneys-in-fact, the court held that medical practices are not permitted to act as attorneys-in-fact as they are neither individuals nor qualified banks. Therefore, the court granted the motion to dismiss, but did so without prejudice.

Ninth Circuit

Duarte v. Russell Inv. Tr. Co., No. 2:21-cv-00961-CDS-BNW, 2024 WL 2957039 (D. Nev. Jun. 12, 2024) (Magistrate Judge Brenda Weksler). This is a breach of fiduciary duty class action challenging the investment strategies of a retirement plan. Before the court was plaintiffs’ motion for leave to file an amended complaint to reassert a previously dismissed co-fiduciary claim and to add two more plan participants as plaintiffs. The assigned magistrate judge recommended the motion be granted with respect to the addition of the two plaintiffs, but denied as to the co-fiduciary claim. The magistrate judge explained that the co-fiduciary claim was dismissed with prejudice and stated, “the Court plainly stated that under the statute, the ‘Caesars Defendant cannot be held liable for breaches of co-fiduciary duty.’” Accordingly, the magistrate concluded that the proper mechanism for seeking leave to amend the co-fiduciary claim is through a motion for reconsideration. The magistrate thus recommended denying the motion insofar as it sought to reinstate the co-fiduciary claim. However, the court saw no major prejudice to defendants in allowing plaintiffs to add two more plan members to their rank, given that their amendment was sought within the discovery period. The magistrate stated that adding the new plaintiffs would not burden defendants beyond requiring them to depose the two individuals. Thus, the magistrate recommended granting plaintiffs’ request to add the new plaintiffs.

Robertson v. Argent Tr. Co., No. CV-21-01711-PHX-DWL, 2024 WL 2977663 (D. Ariz. Jun. 13, 2024) (Judge Dominic W. Lanza). This putative class action alleges that Argent Trust Company violated ERISA in its administration of an employee stock ownership plan. In a previous order, the court granted defendants’ motion to compel arbitration and stayed the action during arbitration proceedings. Since then, the parties have provided the court with regular status reports and arbitration proceedings have commenced. Through the course of these proceedings, plaintiff Shana Robertson claims she has discovered the existence of eight additional defendants that she now wishes to sue. Her claims are governed by ERISA’s statute of repose, “must be asserted by June 14, 2024 or they will be time-barred,” and “although her initial plan was to wait until the conclusion of the arbitration proceedings to amend her complaint, unexpected delays in the arbitration process…have rendered that plan untenable, such that she must seek relief from the stay now.” Accordingly, two motions were before the court. Ms. Robertson moved to temporarily lift the stay and to file an amended complaint. The court granted both motions in this order. First, the court stated that other courts have granted requests to lift stays under very similar circumstances. Second, the court found that there was no bad faith or undue delay on Ms. Robertson’s part. Given these facts, the court concluded that leave to amend should be freely granted and that doing so serves the interest of justice. Finally, the court declined to engage with defendants’ futility arguments because Ms. Robertson has not yet had a chance to respond to them. Furthermore, she seeks to add new defendants, not new claims, and it is therefore “debatable whether the existing defendants even have standing to raise futility arguments in this scenario.” Accordingly, the court temporarily lifted its stay and granted Ms. Robertson’s motion for leave to file an amended complaint.

Tenth Circuit

R.L. v. Aetna Life Ins. Co., No. 2:23-cv-00494, 2024 WL 2941844 (D. Utah Jun. 11, 2024) (Magistrate Judge Daphne A. Oberg). In this action plaintiff R.L. and his son M.L. challenge Aetna Life Insurance Company’s denial of their claim for medical benefits under ERISA Section 502(a)(1)(B) and allege violations of the Mental Health Parity and Addiction Equity Act. R.L. is a participant of, and M.L. is a beneficiary of, a fully-insured group health plan administered by R.L.’s employer Justworks Employment Group LLC. Plaintiffs moved to amend their complaint to add Justworks as a defendant and to assert a new statutory penalties claim against it. Aetna opposed the motion, arguing that plaintiffs unduly delayed filing their new claim in order to increase statutory penalties. In addition, Aetna argued that the new claim is futile, and that plaintiffs failed to comply with local rules by not filing a redlined version of their proposed amended complaint. The court disagreed, and concluded that granting plaintiffs’ motion serves the interest of justice. First, the court differed with Aetna’s characterization of events. Rather than seeing plaintiffs’ delay as being motivated by bad faith, the court was receptive to plaintiffs’ argument that any delay in seeking amendment resulted from ongoing and good faith efforts to obtain all of the plan documents from Aetna and Justworks by other means. Therefore, the court held that Aetna did “not demonstrate undue delay, bad faith, or improper motive.” In addition, the court stated that it found “Aetna’s futility arguments more appropriately addressed in the context of dispositive motions.” Further, the court did not feel that Aetna would be prejudiced by amendment. On top of that, it was not clear to the court that amendment would cause any significant delay. Based on these factors, the court concluded that there was no justification to deny leave to amend. The court thus granted plaintiffs’ motion. Finally, the court stressed that the circumstances of plaintiffs’ noncompliance with the local rules did not justify deviating from its above conclusions, as plaintiffs quickly corrected their error by attaching a redlined version to their reply.

Severance Benefit Claims

Fifth Circuit

Ferris v. Blucora, Inc., No. CIVIL 4:23-CV-1018-SDJ, 2024 WL 2922401 (E.D. Tex. Jun. 10, 2024) (Judge Sean D. Jordan). Corporate shakeups are rattling for employees. Thus, companies will frequently create “change of control” severance plans in order to try to steady their workers through these types of turbulent situations. Such plans are designed to pay terminated employees severance benefits in the event of corporate changes, and incentivize them to stay with the company. In response to concerns about a potential hostile takeover, Blucora, Inc. enacted just such a plan, the Blucora, Inc. Key Leadership Change of Control Severance Plan. Plaintiff Charles W. Ferris III was the former vice president of strategy for the company. “As foreshadowed by the Plan, Blucora eventually experienced a Change of Control when it sold its tax-focused subsidiaries – TaxAct Holdings, Inc., TaxAct Admin Services LLC (‘New LLC’), and TaxSmart Research, LLC – to Franklin Cedar Bidco, LLC.” Mr. Ferris was given a new position at the new company. He alleges that this new position was not substantially comparable to his previous one with Blucora, because of what he viewed as the degradation of his role and a reduction in his compensation and benefits. Mr. Ferris claims that he is entitled to severance benefits pursuant to the plan. His claim for benefits was denied after the plan administrator disagreed that he had experienced a qualifying termination. After exhausting his administrative appeal, Mr. Ferris initiated this action pursuant to ERISA Sections 502(a)(1)(B) and (a)(3) seeking severance benefits under the plan. Defendants moved to dismiss. They argued that they did not abuse their discretion in denying the benefits and that their interpretation of the plan language was legally correct. The court agreed and granted the motion to dismiss with prejudice. “This case turns on whether the phrase ‘on terms and conditions substantially comparable’ modifies both ‘employment or reemployment’ and ‘an offer of employment.’” Ultimately, the court agreed with defendants that the qualification only applied “where an offer of employment was made – but not where employment occurred,” and “that the Plan Administrator correctly read the Plan to exclude from the definition of ‘Qualifying Termination’ instances where the Participant’s termination was ‘followed by employment…with the purchaser,’ regardless of whether the subsequent employment was ‘on terms and conditions substantially comparable’ to his or her previous employment. This reading accords with ordinary grammar usage and the canons of construction, and it is the most plausible interpretation of the provision.” Accordingly, the court dismissed the claim for wrongful denial of benefits. It likewise dismissed Mr. Ferris’ Section 502(a)(3) claim, as it found that Mr. Ferris abandoned his argument that Section 502(a)(1)(B) was inadequate to provide him relief. Therefore, the court agreed with defendants that the two claims were duplicative. Finally, the court denied Mr. Ferris leave to amend, writing that “no amendment could change the fact that the Plan Administrator correctly interpreted the Plan and that Section 502(a)(1)(B) provided an adequate remedy for Ferris’ only injury – not receiving benefits.”

Statutory Penalties

Ninth Circuit

Zavislak v. Netflix, Inc., No. 5:21-cv-01811-EJD, 2024 WL 2882564 (N.D. Cal. Jun. 7, 2024) (Judge Edward J. Davila). Plaintiff Mark Zavislak is a beneficiary of Netflix Inc.’s ERISA health benefit plan. This action arose after Netflix failed to furnish documents Mr. Zavislak requested in a satisfactory or timely fashion. Mr. Zavislak brought his case alleging Netflix violated various sections of ERISA, including, as relevant here, a claim under Section 104 for failure to produce plan documents. In his Section 104 claim, Mr. Zavislak requested penalties of $110 per day beginning on February 26, 2021, the date Netflix refused to furnish additional documents in response to his original January 2021 written request, up to the date of the court’s order. “Zavislak’s requested penalties would have been measured by approximately 1,069 days, resulting in an award of $117,590.” The case proceeded to trial. On January 31, 2024, the court issued its final decision. (Your ERISA Watch reported on this ruling in its February 7, 2024 edition.) The court ruled that Netflix was not required to furnish the additional documents related to plan administration that Mr. Zavislak requested, that when Netflix furnished the summary plan descriptions to Mr. Zavislak it furnished the most up-to-date versions, and that Netflix was indeed untimely in responding to and furnishing the requested documents within 30 days of January 4, 2021. However, the penalties awarded by the court for this violation did not come close to Mr. Zavislak’s request. The court exercised its discretion to award Mr. Zavislak $15 per day from January 4, 2021 to the date Netflix furnished the required plan documents on March 11, 2022, totaling 431 days, and an award of $6,465. The court reached this decision due in part to the exceptional circumstances of the COVID-19 pandemic. Netflix responded to the court’s order by filing a motion to amend the final order or for relief from judgment and a motion for leave to file a motion for reconsideration. The court denied Netflix’s motion for leave to file a motion for reconsideration because its findings of fact and conclusions of law were not an interlocutory order. Instead, the court considered Netflix’s motion to amend pursuant to Federal Rule of Civil Procedure 60. Netflix argued that the court erred in calculating penalties from January 4, 2021 to March 11, 2022, because the court found that Netflix supplied all documents required under ERISA on February 24, 2021. Thus, Netflix argued that if penalties are to be awarded, they should run from January 4, 2021 through February 24, 2021. The court agreed with Netflix on this identified inconsistency. “Although the crux of this case is Zavislak’s claim that the documents he received on February 24, 2021, were incomplete and out of date, the Court ultimately found that all documents furnished on February 24, 2021 were the most up to date versions in Netflix’s possession, and Netflix was not required to furnish the additional documents requested by Zavislak…In other words, the Court found that Netflix discharged its statutory duty regarding Zavislak’s January 2021 Request on February 24, 2021…While this date is still untimely…the correction of this error decreases the penalties calculations for 431 to 51 days.” Accordingly, the court amended its judgment to correct this error and recalculated damages to account for it. The new calculation of damages of $15 per day for these 51 days resulted in total damages of $765, down significantly from the court’s already modest $6,465 penalty. Netflix also advanced arguments for why it believed the award of penalties itself was erroneous, but the court rejected these arguments for various reasons. Accordingly, beyond amending the award of penalties, all other findings of fact and conclusions of law remained unchanged. One can only wonder how much time and money has been expended in the three years this case has been pending, all for $765.