It was a busy ERISA week in the federal courts, especially at the appellate level where the circuit courts issued no fewer than five decisions, three of them published. It was too difficult to focus on just one case, so we’ve decided to let you choose your own adventure among the notable decisions below:

• The Sixth Circuit joined the brigade of circuit courts applying the “effective vindication” doctrine to invalidate arbitration clauses in benefit plans (Parker v. Tenneco)

• A district court let the Department of Labor pursue Blue Cross Blue Shield of Minnesota for allegedly passing its tax obligations off onto the health plans it administered (Su v. BCBSM)

• The Ninth Circuit ruled that a district court has to take another shot at figuring out whether Northrop Grumman mishandled its pension plan transition after acquiring TRW (Baleja v. Northrop Grumman)

• A district court concluded after a week-long bench trial that Prime Healthcare breached no duties in overseeing its retirement plan (In re Prime Healthcare)

• A district court ruled that a medically compromised physician was disabled because a return to work during the height of COVID would have put her health at risk (Downs v. Unum)

• A district court determined that a plan participant was a fiduciary in ordering him to return overpaid disability benefits (P&G v. Calloway)

• A district court ruled that a wrongful death claim against a health plan administrator was preempted by ERISA (Cannon v. Blue Cross)

• And last, but certainly not least, the Sixth Circuit helpfully informed us that you can’t kill your mother and expect to get her life insurance benefits, even if you’re the designated beneficiary (Standard v. Guy)

Of course, these were not the only decisions this week, so if you don’t like any of the above, read on for more!

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

Arbitration

Sixth Circuit

Parker v. Tenneco, Inc., No. 23-1857, __ F. 4th __, 2024 WL 3873409 (6th Cir. Aug. 20, 2024) (Before Circuit Judges Gibbons, McKeague, and Stranch). In this decision the Sixth Circuit joined four sister circuits (the Second, Third, Seventh, and Tenth) in applying the effective vindication doctrine to strike down an arbitration provision in an employee retirement benefit plan which restricts the ability of plan participants to bring representative plan-wide ERISA actions and limits monetary relief to losses to individual plan accounts. The Sixth Circuit found the decisions of the other circuit courts on the same issue instructive and applied their logic to examine the arbitration provision in the Tenneco Inc. 401(k) Plan. The Sixth Circuit ultimately found the plan’s arbitration provision unenforceable under the effective vindication doctrine as it expressly eliminates the ability to proceed in a representative capacity on behalf of the plan or to obtain relief for plan-wide losses. The Sixth Circuit agreed with its sister courts that these “are substantive statutory remedies provided by ERISA.” Contrary to defendants’ assertion, the Sixth Circuit read the Supreme Court’s decision in LaRue as broadening rather than limiting the relief available under Section 502(a)(2). The Sixth Circuit understood LaRue to hold that a derivative fiduciary breach claim may be brought on behalf of a plan “even if the ultimate relief may be individualized,” and declined to interpret LaRue to bar plan-wide recovery. Moreover, the Sixth Circuit noted that it had already considered the question of whether claims under Section 502(a)(2) belong to individuals or to the plan as a whole in an earlier decision, Hawkins v. Cintas Corp, 32 F.4th 625 (6th Cir. 2022), and concluded there that although Section 502(a)(2) claims are brought by individual plan participants the claim really belongs to the plan and such suits are “brought in a representative capacity on behalf of the plan as a whole.” Here, the court determined that the plaintiffs’ action against the fiduciaries of the Tenneco Plan similarly alleges plan-wide harms of plan mismanagement through the selection and retention of high-cost share classes, and through the failure to reduce plan expenses. Additionally, the Sixth Circuit highlighted that the monetary remedies plaintiffs request will flow to the plan not to the individual participants, although individual participants will naturally benefit from any monetary relief obtained. The appeals court also rejected defendants’ argument that the arbitration provision at issue was distinguishable from others barred under the effective vindication doctrine because it provides for certain injunctive relief. “That the individual arbitration provision here still allows plan-wide injunctive relief has no bearing on the fact that it eliminates statutorily created plan-wide monetary relief.” For these reasons, the Sixth Circuit determined that the arbitration provision is an unenforceable prospective waiver of ERISA statutory rights since it eliminates the ability to proceed in a representative capacity on behalf of the plan and the ability to obtain relief for losses to the plan. And because the arbitration provision’s language foreclosing the ability to bring group, class, or representative arbitrations and limiting relief to individual accounts was non-severable, the Sixth Circuit concluded that the arbitration provision was invalid and unenforceable. Thus, the Sixth Circuit affirmed the judgment of the district court denying defendants’ motion to compel arbitration in the plan participants’ Section 502(a)(2) and Section 409(a) ERISA action. However, the decision ended with an important final announcement: “Nothing in this opinion should be construed as implying that §§ 409(a) and 502(a)(2) are incompatible with the arbitral forum. The problem here lies with this individual arbitration provision, which is non-severable, limiting statutory remedies that bar effective vindication of statutory rights.” Thus, the Sixth Circuit left the door open to enforcing other arbitration provisions in ERISA plans which do not suffer from the same problems.

Attorneys’ Fees

Tenth Circuit

L.L. v. Anthem Blue Cross Life & Health Ins. Co., No. 2:22-CV-00208-DAK, 2024 WL 3899380 (D. Utah Aug. 21, 2024) (Judge Dale A. Kimball). Plaintiffs moved for an award of attorneys’ fees and costs under ERISA Section 502(g)(1) after the court entered summary judgment in their favor and remanded the case to Anthem Blue Cross to review the family’s healthcare claims again. In that decision, the court concluded that defendants abused their discretion by failing to meaningfully engage with plaintiffs’ claim and appeals, as required by ERISA. Plaintiffs were represented in this matter by attorney Brian King and two associate attorneys in Mr. King’s office, Mr. Newton and Mr. Somers. As an initial matter, the court clarified that there is no blanket rule in the Tenth Circuit that fee awards are premature “whenever a district court decides to remand a claim to the plan administrator rather than ordering benefits directly.” Rather, to determine whether attorneys’ fees were appropriate, the court applied the five-factor Gordon v. U.S. Steel Corp. test. It concluded that all five factors supported a fee award because: (1) defendants were culpable of irresponsibly engaging with the evidence plaintiffs submitted; (2) Anthem Blue Cross can easily satisfy a fee award; (3) a fee award would serve a desirable deterrent for plan administrators and would encourage them to fully evaluate healthcare claims going forward; (4) this case has clarified what is expected in the claims handling of healthcare claims in order for claims administrators to fully engage in a meaningful dialogue; and (5) plaintiffs had success on the merits. After establishing that a fee award is appropriate here, the decision segued to its scrutiny of the requested fee amount. First, the court looked at the requested hourly rates. Mr. King, an ERISA expert who has been practicing for 38 years, charges an hourly rate of $600. His associates, Mr. Newton and Mr. Somers, charge $250 and $350 respectively. The court found all of these rates reasonable. As for the time requests, the court further concluded that 46.7 hours for Mr. King, 10.4 hours for Mr. Newton, and 72.6 hours for Mr. Somers were all appropriate and reasonable. Accordingly, the court awarded plaintiffs their full requested amount of $49,810. Plaintiffs’ costs, consisting of the $400 filing fee, were also determined to be recoverable.

Breach of Fiduciary Duty

First Circuit

Kovanda v. Heitman, LLC, No. 23-CV-12139-NMG, 2024 WL 3888762 (D. Mass. Aug. 12, 2024) (Magistrate Judge Donald L. Cabell). In 2002, decedent Karen Ann Kovanda named her parents as the primary beneficiaries of her retirement account in the event of her death, and her sister, Heidi Hallisey, as a secondary beneficiary. Years later, in 2017, Ms. Kovanda retired from her job at Heitman LLC. Later that same year, Heitman changed the plan’s recordkeeper from Merrill Lynch to John Hancock Retirement Plan Services. There was seemingly a mix-up at this time, and Heitman failed to provide the 2002 beneficiary designation to John Hancock. This led to John Hancock misrepresenting to Ms. Kovanda that she had not designated a beneficiary. As a result, when Ms. Kovanda was estate planning in 2020, she informed her attorney that the retirement plan had no designation so her benefits would pass to her estate or trust. Ms. Kovanda prepared an estate plan that did not involve her sister Heidi (nor her parents who were already deceased at this point). Instead, Ms. Kovanda selected three other siblings that she wanted her assets to pass to, specifying to her attorney that she did not intend for her assets to pass to her other three siblings. Ms. Kovanda died shortly thereafter. In the end, her retirement plan benefits went to Heidi, pursuant to the 2002 beneficiary designation. The three chosen siblings of Ms. Kovanda’s estate sued their sister and Heitman in this action challenging the distribution of benefits. The plaintiffs assert five claims: (1) a claim for declaratory judgment; (2) a claim for benefits under ERISA Section 502(a)(1)(B); (3) a claim of breach of fiduciary duty under Section 502(a)(3); (4) a claim for violation of the terms of the ERISA plan under Section 502(a)(3); and (5) unjust enrichment pursuant to state common law. The court concluded that the payment of benefits to Heidi was proper under the terms of the plan and therefore dismissed counts 2 and 4. However, drawing all instances in plaintiffs’ favor, the court determined that they asserted a colorable, plausible claim for breach of fiduciary duty, and a derivative claim for declaratory judgment. The court therefore denied the motion to dismiss with regard to counts 1 and 3, and stated that limited discovery into the alleged breach of fiduciary duty was appropriate. Finally, the court declined to exercise jurisdiction over the unjust enrichment claim asserted against the sister. This claim too was therefore dismissed.

Sixth Circuit

The P&G Health & Longterm Disability Plan v. Calloway, No. 1:23-cv-372, 2024 WL 3861051 (S.D. Ohio Aug. 19, 2024) (Judge Matthew W. McFarland). The administrator of Procter & Gamble’s long-term disability plan brought this action seeking overpayments from a disabled plan participant, defendant Lonorris Calloway, after he received a lump-sum payment of disability benefits from the Social Security Administration. Plaintiff asserted six causes of action against Mr. Calloway: (1) ERISA breach of fiduciary duty; (2) breach of contract; (3) unjust enrichment; (4) constructive trust; (5) conversion; and (6) enforcement of disability plan terms to recover the overpayment. This case apparently was not brought as a subrogation action, despite being similarly fashioned. Mr. Calloway has not appeared in this litigation and his time to respond to the complaint has passed. Accordingly, plaintiff moved for default judgment. The court first tackled plaintiff’s breach of fiduciary duty claim. The court found that Mr. Calloway, a plan participant, “is a fiduciary of the Plan.” Moreover, the court held that the overpayments from the plan “are Plan assets under ERISA,” and Mr. Calloway’s “retention of the Plan’s assets imposes fiduciary duties onto” him. By failing to repay plaintiff any overpayment he received from the plan resulting from the Social Security Administration’s payments, the court found that Mr. Calloway violated his fiduciary duty to the plan. Thus, the court entered default judgment in favor of the plan administrator on its ERISA fiduciary breach claim. Nevertheless, the court denied the motion for default judgment on the remaining five causes of action. To the extent they were asserted under state law, the court found the claims preempted by ERISA, and to the extent they were asserted under federal law the court found them unnecessary in light of its ruling on the fiduciary breach claim. Finally, the court awarded plaintiff the full requested damages of $9,978.57, and costs of $436.91. The court was satisfied that the damages were correct as the plan administrator provided documentation proving Mr. Calloway’s receipt of Social Security benefits and the extent and duration of the plan’s overpayment. As for the costs, consisting of filing fees and postage, the court found them reasonable and recoverable. Accordingly, the Procter & Gamble disability plan administrator was successful in this fiduciary breach action brought against a plan participant.

Seventh Circuit

Acosta v. Board of Trs. of UNITED HERE Health, No. 22 C 1458, 2024 WL 3888862 (N.D. Ill. Aug. 21, 2024) (Judge Rebecca R. Pallmeyer). Plaintiffs are participants in three units of a national multiemployer health plan, UNITE HERE Health. They have sued the fiduciaries of the plan for breaches of fiduciary duties for unfair allocation of administrative expenses and incurring excessive administrative expenses. These two causes of action have already survived a pleading challenge, when the former judge assigned to this matter denied in part defendants’ motion to dismiss this action. That ruling, covered in our April 12, 2023 newsletter, concluded that plaintiffs sufficiently stated their fiduciary breach claims asserted under ERISA Sections 502(a)(2), (a)(3), and 409 in connection with the administrative expenses, as they “showed that similarly situated funds accrued significantly lower administrative costs,” and provided evidence that defendants treated their units unfavorably. In that same decision, the court granted defendants’ motion to dismiss the claim for violation of the exclusive purpose rule, as well as the prohibited transaction claim. Plaintiffs have since amended their complaint to add an additional named plaintiff and excise the two dismissed causes of action. They made no substantive changes to the fiduciary breach claims. Defendants filed a motion to dismiss the excessive fee fiduciary breach claim under Rule 12(b)(6). The court denied their motion. It concluded that plaintiffs did more than enough “to sustain this court’s earlier ruling,” and saw no reason to disturb it. The court rejected the level of specificity defendants demanded in determining whether plaintiffs had pled proper comparisons. “Nothing in either Albert or Hughes suggests that Plaintiffs must identify every possible service provided by peer plans, or describe their administrative structure in exhaustive detail, to allow for a meaningful comparison. It would be unduly burdensome to require the Complaint to itemize the full range of medical, dental, vision, and other benefits provided across not only UHH’s various plan units, but those of 29 other comparator plans.” Instead, the court expressed that plaintiffs only need to identify why their offered comparison was possible, and concluded that they did so by pleading “that one of the major drivers (if not the only driver) of a health plan’s operating costs is whether it is fully or self-insured. And if the story Plaintiffs tell is true, the costs they incur for fully insured benefits exceed not only those of other fully-insured plans, but even the supposedly more expensive self-insured plans.” Thus, defendants’ second attempt to dismiss the fee claim was once again denied.

Eighth Circuit

Su v. BCBSM, Inc., No. CV 24-99 (JRT/TNL), 2024 WL 3904715 (D. Minn. Aug. 22, 2024) (Judge John R. Tunheim). Acting Secretary of Labor Julie A. Su brought this action against BCBSM, Inc., a third-party administrator for about 370 self-funded health insurance benefit plans in Minnesota. The dispute arises from Minnesota tax law, which imposes a “MNCare Tax” on medical care providers’ gross revenues from patient services. BCBSM “agreed to reimburse providers in its network for their MNCare Tax liabilities and passed along those reimbursement expenses to the plans.” However, the Department of Labor contends that the plans “did not agree to the tax reimbursements, that reimbursement was a gratuitous offer by BCBSM, and that BCBSM thus engaged in prohibited transactions and violated its fiduciary duties by using plan assets to pay the providers’ MNCare Taxes without the plans’ knowledge or consent.” The DOL argued that in doing so BCBSM “recoup[ed] nearly $67 million from the plans for its own MNCare reimbursement liabilities between 2016 and 2020.” BCBSM filed a motion to dismiss, contending that the DOL lacked standing and failed to state a claim. The court opined that “many issues in this case present close calls,” but ultimately it rejected both of BCBSM’s arguments and denied the motion. On standing, BCBSM argued that the alleged harm was speculative because the rates between it and the providers were all negotiated and thus it mattered little how those rates were itemized. In short, even if the tax was not included, the paid rates likely would have been the same and thus the plans suffered no harm. The court conceded that this might be true, but refused to arrive at that conclusion on a motion to dismiss: “The Court cannot be sure that BCBSM’s hypothetical negotiations would have worked so neatly in practice, or that the plans would have no objections. The Court will thus allow the parties a chance to develop the record before ruling on this fact-bound issue.” On the merits, the court agreed with the DOL that BCBSM was acting as a functional fiduciary because BCBSM “exercised authority or control over plan assets” by “unilaterally encumbering” those assets. As for breach, the court ruled that “whether BCBSM fairly negotiated to pay the MNCare Tax, and thus whether it was authorized to use plan funds to do so, presents a question of fact that cannot be resolved on a motion to dismiss.” The court found it “at least plausible that the taxes should not have been included in the negotiated rate as understood by the parties.” Finally, the court ruled that the DOL had adequately alleged that BCBSM’s use of plan assets to cover its own liabilities constituted a prohibited transaction under ERISA, and that it was premature to address BCBSM’s argument that no remedies were available. As a result, the court denied BCBSM’s motion to dismiss.

Ninth Circuit

In re: Prime Healthcare ERISA Litig., No. 8:20-CV-1529-JLS-JDE, 2024 WL 3903232 (C.D. Cal. Aug. 22, 2024) (Judge Josephine L. Staton). This lengthy order constitutes the findings of fact and conclusions of law from a week-long bench trial that took place in April. The action was brought by a class of participants and beneficiaries of Prime Healthcare Services, Inc.’s 401(k) retirement benefit plan against Prime and its benefit committee. Plaintiffs alleged that the committee failed to prudently monitor the investments made by the plan, failed to prudently monitor the plan’s recordkeeping fees, and failed to prudently monitor the plan’s share classes. Plaintiffs also alleged that Prime failed to prudently monitor the committee. The court spoiled the conclusion in the first paragraph: “The Court concludes that Defendants used a prudent process to select, monitor, and retain investments; to monitor the Plan’s recordkeeping and administration fees; and to monitor the share classes of the investments in the Plan. Therefore, the Court rules against Plaintiffs and in favor of Defendants on all of Plaintiffs’ claims.” The court began by criticizing plaintiffs’ two expert witnesses. The first, a process expert, offered generic, conclusory opinions, inexplicably discarded countervailing evidence, offered internally inconsistent opinions, and relied on limited documents, and thus the court gave her testimony “little to no weight.” The second, a recordkeeping fee expert, had “minimal relevant industry experience,” offered “conclusory, ipse dixit” testimony, misunderstood ERISA’s requirements, and offered impermissible legal conclusions. On the other hand, defendants’ expert testimony was “highly probative” because of his “broad experience in the retirement-benefits industry, his specific experience specific working with clients similar to Prime, and his reliance on formal research into industry practice[.]” The court found that Prime’s committee met regularly, was actively engaged in managing the plan, and its members had relevant experience. The court also found that the committee “selected, monitored, and retained the Plan’s investments pursuant to a prudent fiduciary-governance structure.” There was no evidence that the plan’s investment policy statement (IPS) or the committee’s training were substandard, or that its lack of a written charter was relevant to plaintiffs’ claims. The committee also “closely monitored” the funds at issue, even when they were performing well, and complied with the IPS. The court further rejected plaintiffs’ argument that the committee failed to respond to “red flags” in a Reuters report, finding that the committee knew about the report and concluding that plaintiffs “are simply taking issue with the Committee not more quickly moving to better-performing alternatives – without showing any underlying deficiencies in the investment-monitoring process.” As for the recordkeeping fees, the court found that the committee regularly met to discuss fees, and commissioned three vendor fee benchmarks during the class period, and thus it “used a prudent process” to monitor those fees. On the share classes issue, the court found that the committee “routinely discussed” this issue and worked with fund managers to investigate lower-cost options. As a result, the committee “made reasonable, informed choices with respect to those share classes.” Because the court found that the committee had not breached any of its fiduciary duties, plaintiffs’ derivative claim that Prime failed to prudently monitor the committee also failed. Finally, the court rejected plaintiffs’ argument that defendants breached their fiduciary duties by not distributing funds in the plan’s expense-budget account to participants. The court ruled that this argument was not present in plaintiffs’ complaint or the pretrial order, which the court found consistent with plaintiffs’ “pattern of sandbagging in this case.” In any event, the court ruled that the argument had no merit because the plan contained language explicitly allowing defendants to use the expense-budget funds to pay plan expenses. As a result, Prime and its committee prevailed on all counts.

Class Actions

First Circuit

Parmenter v. The Prudential Ins. Co. of Am., No. CV 22-10079-RGS, 2024 WL 3903076 (D. Mass. Aug. 22, 2024) (Judge Richard G. Stearns). Plaintiff Barbara Parmenter, an employee of Tufts University, sued Tufts and Prudential Insurance Company in this putative class action alleging that they improperly raised the premiums on her ERISA-governed long-term care coverage. Specifically, she argued that the benefit plan stated that any premium increases would be “subject to” approval by the Massachusetts Department of Insurance, and that Prudential never obtained such approval before raising premiums twice – once by 40% and then again by 19%. The district court agreed with Prudential that Ms. Parmenter had not demonstrated that Prudential had breached any fiduciary duty, and agreed with Tufts that Tufts was not a proper defendant. As a result, the court dismissed the action. On appeal, the First Circuit affirmed the dismissal of Tufts because it was not involved in implementing the rate hike. However, it reversed as to Prudential, ruling that the “subject to” language was ambiguous. (This published opinion was Your ERISA Watch’s notable decision in its February 21, 2024 issue.) On remand, Ms. Parmenter filed a motion for class certification, proposing two overlapping classes. The district court noted that it was not deciding “which side’s interpretation of the ‘subject to’ clause wins the day. The court need only determine whether the clause can be interpreted uniformly on a class-wide basis. With this in mind, after considering the evidentiary proof put forward by Parmenter, of which there is little, the court finds that she has failed to demonstrate commonality.” The court ruled that because the “subject to” language was ambiguous, the question of how it should be interpreted “cannot be answered universally for the classes.” This was because ambiguous language requires extrinsic evidence in order to interpret it, which the court stated Ms. Parmenter had not supplied. Even if she had, the court noted that the plans at issue were sponsored by different employers at different times, and thus it was likely that each understood the plan differently, and that other plan terms that also changed over time might affect that understanding. Furthermore, each class member might have a different understanding as to what the language meant. In short, “The central dispute in this case can only be resolved by examining extrinsic evidence that is necessarily individualized in nature.” Ms. Parmenter did not present evidence demonstrating that the language at issue could be “interpreted uniformly,” and “[t]he court therefore cannot certify the Classes.” Ms. Parmenter’s motion was denied.

Tenth Circuit

McFadden v. Sprint Commc’ns, No. 22-2464-DDC-GEB, 2024 WL 3890182 (D. Kan. Aug. 21, 2024) (Judge Daniel D. Crabtree). On April 9, 2024, the court granted preliminary approval of the proposed class action settlement of this action challenging the actuarial assumptions and calculations of the joint and survivor annuities in the Sprint Retirement Pension Plan. In that decision (summarized in Your ERISA Watch’s April 17, 2024 newsletter) the court conditionally certified the class of plan participants and beneficiaries who began receiving joint and survivor annuity benefits throughout the class period, and preliminarily found the $3.5 million settlement, approximately 36% of the full potential for class wide damages, “fair, reasonable, and adequate” as Federal Rule of Civil Procedure 23(e) requires. Since then, notice has been sent and the court conducted a fairness hearing. Now plaintiffs move for final approval of the settlement, certification of the settlement class under Federal Rule of Civil Procedure 23(b)(1)(A), appointment of plaintiffs as class representatives, appointment of Izard, Kindall & Raabe, LLP and Foulston Siefkin LLP as class counsel, and awards of attorneys’ fees, expenses, and class representative service awards. Their motions were granted in this decision. First, the court certified the class, concluding it met both the requirements of Rule 23(a) and Rule 23(b), as the class is numerous, common questions unite the class, plaintiffs are typical of the class and adequate representatives, and the prosecution of separate actions would create the risk of varying and incompatible standards of conduct for the defendants. Second, the court approved the settlement, which it concluded was an informed negotiation, negotiated at arm’s length, a good result considering the uncertainty of litigation, treated the class members equitably, and, as before, is fair, reasonable, and adequate. Third, the court blessed the notice, both its content and the manner in which it was sent. Fourth, the court confirmed its prior appointments of plaintiffs as class representatives and their attorneys as class counsel. Fifth, the court awarded attorneys’ fees of one-third of the settlement amount and class counsel expenses of $25,926.01, concluding they were fair and appropriate given the result obtained through settlement. Sixth, the court held that the requested $5,000 class representative service awards to each named plaintiff were “unreasonable and orders a lesser award from the settlement fund,” of $100 per hour for each plaintiff. So, the court awarded $3,000 to one of the plaintiffs who devoted 30 hours of work, and $5,000 to the other plaintiff for his 50 hours of work. Accordingly, this litigation reached its conclusion and the settlement received its final blessing from the court.

Eleventh Circuit

Blessinger v. Wells Fargo & Co., No. 8:22-cv-1029-TPB-SPF, 2024 WL 3851244 (M.D. Fla. Aug. 16, 2024) (Magistrate Judge Sean P. Flynn). In this report and recommendation, the assigned Magistrate Judge recommended the court grant final approval of class settlement and grant plaintiffs’ unopposed motion for attorneys’ fees and costs in an action challenging the content of COBRA notices sent by Wells Fargo to its former employees. Plaintiffs alleged that Wells Fargo’s COBRA notices were defective, misleading, and even threatening. As a result of the allegedly deficient COBRA notices, plaintiffs assert they were dissuaded from electing continuing health coverage, which led to the loss of health insurance benefits and incurring out-of-pocket medical expenses. After the court denied the motion to dismiss the action, the parties engaged in discovery. “In all, Plaintiffs estimate they received approximately 4,000 documents obtained for discovery.” Plaintiffs subsequently moved for class certification. While plaintiffs’ motion for class certification was pending, the parties successfully mediated, and informed the district judge of the settlement. The settlement class is defined as all participants and beneficiaries of the Wells Fargo health plan who were sent COBRA notice and did not elect COBRA coverage, excluding individuals who entered into arbitration agreements with Wells Fargo. The settlement class consists of 50,627 individuals. The settlement, which resolves all claims in this action, requires Wells Fargo to deposit $1 million into a qualified settlement fund. “Under the Settlement, the Net Settlement Proceeds will be distributed to eligible Settlement Class Members who submit valid and timely claims.” Each settlement class member who submits a timely and valid claim will receive a check out of the settlement fund “for up to Twenty Dollars and Zero Cents ($20.00).” The settlement class members will have 60 days to submit a claim after notice of settlement is mailed to them. However, settlement class members may opt out or object to the settlement. Class counsel moved for fees of 30% of the gross settlement, $300,000, and costs of $10,772.94. The Magistrate found the named plaintiffs had standing to bring this case, that the class met the requirements of Rule 23, that plaintiffs and their counsel “vigorously represented the Settlement Class,” and that the class action settlement itself was fair, reasonable, and adequate. In particular, the Magistrate stated, “the per-class-member award ($20.00) is within the range of reasonableness and approximates settlement awards approved by courts in the Eleventh Circuit in other COBRA notice class actions.” Further, the Magistrate noted that success at trial was uncertain, and because this case involves informational injuries, even if the plaintiffs were to prevail the court could exercise its discretion to “elect a statutory damages award of zero.” The Magistrate also found it significant that “there have been no objections and only three out of 50,627 Settlement Class Members opted out of the class.” In addition, the Magistrate Judge identified no issues with the adequacy of the notice. Finally, the report ended with the Magistrate’s conclusion that the requested attorneys’ fee award of 30% of the fund was appropriate given the time and labor devoted to the action pursued on a contingency basis, and that class counsel should recover their litigation expenses, which consisted of filing fees, mediator fees, and court reporter fees. Based on the foregoing, the Magistrate recommended that the court grant plaintiffs’ motions.

Disability Benefit Claims

Eighth Circuit

Ziegler v. Sun Life Assurance Co. of Can., No. 4:22-cv-01115-SRC, 2024 WL 3874529 (E.D. Mo. Aug. 19, 2024) (Judge Stephen R. Clark). Plaintiff Taylor Ziegler applied for disability benefits after being diagnosed with lupus and related autoimmune disorders following the birth of her child. Sun Life Assurance Company of Canada denied her claim after its reviewing doctors concluded that there was no objective medical evidence “in the documentation to support these severe restrictions and limitations or that this young lady should be incapacitated for the rest of her life.” Following an unsuccessful administrative appeal, Ms. Ziegler filed this action to challenge the denial. Sun Life moved for summary judgment under an abuse of discretion standard of review. Ms. Ziegler opposed Sun Life’s summary judgment motion and argued that there is a genuine dispute “as to whether the plaintiff is required to prove disability by objective evidence,” and relied on Eighth Circuit precedent from House v. Paul Revere Life Ins. Co., 241 F.3d 1045 (8th Cir. 2001) to support this point. However, the court distinguished House and moreover emphasized that the Eighth Circuit “has since cabined the reach of House: ‘House does not state a universal rule that an administrator is precluded from insisting on objective evidence when it is appropriate under the terms of the plan and the circumstances of the case.” Here, the court stated that it was reasonable for Sun Life to interpret the plan to require objective evidence from Ms. Ziegler. “Having discretion to construe terms of the plan, plan administrators can reasonably deny benefits for lack of objective evidence.” Thus, the court concluded that Sun Life did not abuse its discretion by heavily relying on the lack of objective findings in the medical evidence. Next, the court concluded that even assuming there was conflicting medical evidence, “and it is dubious that a conflict in the evidence actually exists,” it was not an abuse of discretion for Sun Life to favor the opinions of its reviewing doctors over the opinions of Ms. Ziegler’s treating physicians. “Sun Life did exactly what the law commits to plan administrators – weigh evidence and come to a decision that has support in the record. It obtained the opinions of three reviewing doctors, and each doctor reviewed Ziegler’s file, disagreed with Dr. DiValerio’s diagnosis, and opined that Ziegler lacked a disability.” Accordingly, the court upheld Sun Life’s denial and granted its motion for summary judgment.

Ninth Circuit

Downs v. Unum Life Ins. Co. of Am., No. 23-cv-01643-RS, 2024 WL 3908106 (N.D. Cal. Aug. 19, 2024) (Judge Richard Seeborg). In March of 2020, pediatrician Dr. Maureen Downes needed to undergo gynecological surgery to remove both her uterus and a precancerous tumor. During her post-surgery recovery, the COVID-19 pandemic surged. Dr. Downes, then 70 years old with a history of cancer, heart disease, diabetes, and asthma, was very vulnerable to COVID-19 complications, and had a high mortality risk due to her underlying health issues, comorbidities, and age. Fearful of what a COVID infection might do to her, and unable to practice medicine at home, Dr. Downes applied for long-term disability benefits. In the court’s findings of fact and conclusions of law under Rule 52(a), the court became the first court in the country to explicitly decide “whether a present condition that puts a beneficiary at high risk of COVID-19 but would not otherwise prevent them from completing their usual occupational responsibilities constitutes a disability.” Under de novo review of Dr. Downes’s unique circumstances, the court’s answer was yes. The court rejected Unum’s attempts to trivialize Dr. Downes’s concerns. “Unum insists Plaintiff’s fear of COVID-19 cannot constitute a disability because, under her theory, ‘every healthcare worker aged 65 and up would have been deemed disabled had they made a claim for disability benefits during the pandemic.’ Notwithstanding that this statement ignores the plethora of medical issues Plaintiff experienced, Unum’s floodgates scenario is unrealistic. Plaintiff’s concerns were limited to a particular time period – the immediate advent of COVID-19, which was so serious that it caused a global shutdown. Moreover, Plaintiff’s age and underlying medical impediments placed her at severe risk of infection and, not trivially, death.” The court also stated that it found informative several cases where a court concluded that a risk of relapse could constitute a present disability. Further, the court agreed with Dr. Downes that the specific nature of her work placed her at greater exposure risk to COVID-infected patients, and that this fact should not be downplayed or discounted. Accordingly, the court was satisfied that Dr. Downes proved by a preponderance of evidence that she met her plan’s definition of disability and qualified for benefits. Judgement was therefore entered for Dr. Downes.

ERISA Preemption

First Circuit

Cannon v. Blue Cross & Blue Shield of Mass., Inc., No. 23-CV-10950-DJC, 2024 WL 3902835 (D. Mass. Aug. 22, 2024) (Judge Denise J. Casper). Plaintiff Scott Cannon is the representative of the estate of Blaise Cannon, who died from complications from asthma. Before his death, Blaise was insured by defendant Blue Cross & Blue Shield of Massachusetts, which denied his request for coverage for a Wixela Inhub inhaler. Plaintiff brought this action in Massachusetts state court alleging a variety of state law causes of action in which he accused Blue Cross of violating the terms of the benefit plan and for being responsible for Blaise’s death. Blue Cross removed the action to federal court and filed a motion for dismiss, arguing that plaintiff’s claims were all preempted by ERISA. The court denied the motion as premature, ruling that it would allow discovery on the preemption issue. (Your ERISA Watch covered this decision in its November 15, 2023 edition.) The parties conducted discovery, after which Blue Cross resumed its preemption argument in a motion for summary judgment. Plaintiff conceded that four of his six claims were preempted by ERISA, but contended that his claim for wrongful death and his corresponding claim for punitive damages should survive. The court disagreed and granted Blue Cross’ motion, ruling that both claims “are preempted both because the Court would be required to consult the Policy to resolve them and because they arose from the alleged improper denial of benefits. Each claim relies upon the same premise: that Defendant improperly denied Blaise a particular health benefit, thus resulting in his death.” Plaintiff argued that his claims were not preempted because “the Massachusetts wrongful death statute provides a distinct form of relief,” but the court was unpersuaded: “the wrongful death claim is an action for damages related to a breach of plan and is therefore precisely the type of alternative enforcement mechanism disallowed under ERISA § 502(a).” The court further ruled that even if the complaint asserted an ERISA claim, it would still fail because it sought a remedy unavailable under ERISA: “ERISA ‘does not create compensatory or punitive damage remedies where an administrator of a plan fails to provide the benefits due under that plan.’” Thus, the court granted Blue Cross summary judgment.

Seventh Circuit

Carnes v. HMO La., No. 23-2903, __ F. 4th __, 2024 WL 3873528 (7th Cir. Aug. 20, 2024) (Before Circuit Judges St. Eve, Kirsch, and Lee). Plaintiff-appellant Paul Carnes sued the administrator of his employer-sponsored health plan alleging it violated Illinois state insurance law for “vexatious and unreasonable” failure to pay the amounts of his outstanding medical claims for the treatment of a degenerative disc disease. As the ERISA-governed plan at issue is self-funded, the district court dismissed Mr. Carnes’s complaint on ERISA preemption grounds, but allowed him leave to amend his complaint to plead a cause of action under ERISA. Mr. Carnes declined this opportunity and instead moved for reconsideration. The district court affirmed its earlier findings and denied the motion for reconsideration, closing the case. On appeal the Seventh Circuit agreed with the district court that Mr. Carnes’s state insurance law claim “falls squarely within ERISA’s broad preemption,” as he “seeks to enforce his rights under (and receive payment pursuant to) the health plan by arguing that HMO Louisiana impermissibly refused to pay him benefits, in violation of Illinois state law.” Further, the appeals court concluded that the state law claim was not saved by ERISA’s saving clause which normally allows the States to enforce state laws that regulate insurance because self-funded ERISA plans are exempt from state insurance regulating laws under ERISA’s deemer clause. Thus, the savings clause was found to be inapplicable. “At bottom, Carnes is aggrieved by HMO Louisiana’s refusal to pay his medical expenses, irrespective of how he structures his argument. Such a remedy is provided by ERISA.” Based on the foregoing, the court of appeals agreed with the district court that Mr. Carnes’s suit is preempted by ERISA, and because he does not seek to sue under ERISA, the Seventh Circuit affirmed the dismissal of the case.

Life Insurance & AD&D Benefit Claims

Sixth Circuit

Standard Ins. Co. v. Guy, No. 21-5562, __ F. 4th __, 2024 WL 3857926 (6th Cir. Aug. 19, 2024) (Before Circuit Judges Griffin, Bush, and Larsen). It is an old and established principle that a beneficiary of a life insurance policy should not be allowed to recover the proceeds if the beneficiary feloniously kills the insured. Forty-eight states and the District of Columbia have such a “slayer statute,” while Massachusetts and New Hampshire rely on case law to prevent murderers from profiting from their wrongdoing. In this interpleader action Standard Insurance Company sought a court order to determine who is entitled to life insurance benefits from policies belonging to a woman who was brutally murdered by her son, appellant Joel M. Guy, Jr. The district court concluded that both Tennessee’s state slayer statute and federal common law prevent Mr. Guy from benefiting from his matricide. On appeal, the Sixth Circuit agreed. Rather than definitively resolve the issue of ERISA preemption over the state slayer statute, the court punted and agreed with the lower court that even if ERISA was preemptive, Mr. Guy could not recover under federal common law. Although there are many virtues of ERISA’s broad pay-the-designated-beneficiary rule, the court nevertheless noted that the rule is not absolute, and demonstrated this by way of cases involving undue influence or fraudulently procured designation. According to the court, slayer statutes similarly stand for the principle that “the law prohibits a wrongdoer from benefiting from his crime,” and appropriately assume that an insured would not have named their beneficiary had they known what would occur. Thus, just as a person cannot receive insurance payments after setting fire to a building, under longstanding and “near axiomatic” common-law slayer rules, “a beneficiary cannot maintain an action for insurance proceeds after having murdered the insured.” As a result, the Sixth Circuit affirmed the holdings of the lower court. 

Medical Benefit Claims

Fourth Circuit

Carl A.B. v. Blue Cross Blue Shield of N.C., No. 1:22-CV-84, 2024 WL 3860072 (M.D.N.C. Aug. 19, 2024) (Magistrate Judge Joi Elizabeth Peake). Eating disorders and substance use disorders are two of the deadliest mental health diseases. Plaintiff L.B. suffers from both illnesses, and has a history of suicide attempts and hospitalizations. Like so many families before them, L.B. and her father, Carl A.B., have struggled to get their insurance plan to pay for residential treatment. At first, Blue Cross denied coverage for failure to receive pre-authorization. However, the family successfully appealed, arguing that L.B. was experiencing a medical emergency at the time. This triggered a new review of the treatment. Unfortunately, Magellan Healthcare upheld the denial based on its own internal residential behavioral health level of care guidelines, concluding that L.B. was not in acute distress, and that she could therefore be safely treated at a lower level of care. In this ERISA action, the family challenges that denial and seeks payment of the $42,940 in total costs that resulted from L.B.’s treatment. In a report and recommendation, the assigned Magistrate Judge recommended the court grant summary judgment in favor of the insurance companies and deny the family’s cross-motion for summary judgment. The family argued that the denial was an abuse of discretion. First, the family contends that Blue Cross and Magellan failed to comply with ERISA’s procedural requirements by failing to respond to their appeals within the mandated timeframe, failing to cite specific plan language, failing to identify the healthcare professional who reviewed the claim, and failing to provide documents upon request. While the Magistrate agreed that the record demonstrated that defendants violated ERISA’s procedural requirements, the judge nevertheless concluded that there was not even “any casual connection between any delay or other procedural violation in this case and the final determination,” and that plaintiffs were not prejudiced by the procedural deficiencies. Thus, the Magistrate disagreed with the family that procedural and regulatory deficiencies established an abuse of discretion. Next, the Magistrate Judge concluded that defendants properly engaged with the evidence in the record and followed a reasoned and principled process, despite plaintiffs’ arguments to the contrary. The magistrate highlighted that there was evidence in the record that L.B. could have been safely treated at a lower level of care, including the fact that she was not a dangerous weight when she was admitted to the residential treatment program. Finally, the Magistrate did not fault defendants for focusing on acute care despite the plan language not including any such language. “As with all care, Defendants had the discretion to deny coverage which it reasonably determined was not medically necessary… In this context, the language used by Defendants in denying coverage was related to the Plan’s language, and, separately, directly responsive to the arguments raised by Plaintiffs in seeking coverage.” For these reasons, the Magistrate recommended that the denials be affirmed and judgment be entered in favor of defendants.

Pension Benefit Claims

Ninth Circuit

Baleja v. Northrop Grumman Space & Mission Sys. Corp., No. 22-56042, __ F. App’x __, 2024 WL 3858720 (9th Cir. Aug. 19, 2024) (Before Circuit Judges Tashima, Graber, and Christen). Plaintiffs, a class of employees, appealed the district court’s judgment against them after a bench trial in this ERISA class action brought against Northrop Grumman Space and Mission Systems Corp. Salaried Pension Plan, the plan’s administrative committee, and the Northrop Grumman Corporation. At issue were pension benefit calculations following corporate mergers among defense contractor giants Northrop Grumman and TRW, Inc. ESL was a subsidiary of TRW. Former employees of ESL experienced plan offsets from their old retirement fund which decreased benefits under the Northrop pension plan, in many cases to zero. In addition, the class of former ESL employees alleged that defendants breached their fiduciary duties by violating ERISA’s disclosure requirements. In this decision the Ninth Circuit identified several errors in the district court’s decisions, and affirmed in part, reversed in part, and remanded. To begin, the Ninth Circuit determined that plaintiffs’ claim for equitable relief for defendants’ breach of fiduciary duty was timely filed in 2017, as it was just three years after defendants’ issuance of the 2014 summary plan description which was “the ‘last action’ in a series of allegedly misleading statements about the pension offset.” Therefore, the court of appeals stated that the district court erred in holding that plaintiffs’ claim was untimely. Moreover, the Ninth Circuit rejected “as unsupported by law, Defendants’ contention that Plaintiffs waived the argument about the 2014 summary plan description by failing to mention that specific document in the operative second amended complaint.” And although the district court did not address the merits of the Section 502(a)(3) fiduciary breach claim, the Ninth Circuit exercised its discretion to reach the issue, and concluded that there was a genuine issue of material fact about whether defendants breached their fiduciary duty of disclosure by issuing a series of misleading statements about the pension offsets. As ERISA requires that summary plan descriptions “be written in a manner calculated to be understood by the average plan participant,” the Ninth Circuit determined that a reasonable finder of fact could conclude “that Defendants’ confusing, convoluted, and misleading communications failed to meet ERISA’s disclosure requirements.” Therefore, the court of appeals reversed the district court’s summary judgment and remanded for trial on the fiduciary breach claim. As for the benefit claims under Section 502(a)(1)(B), the appeals court’s position was nuanced. “In large part, the district court permissibly concluded…that Defendants prevailed on Plaintiffs’ ERISA claim for benefits under 29 U.S.C. § 1132(a)(1)(B).” The Ninth Circuit found that the plan administrator did not abuse its discretion by interpreting the plan as authorizing offsets for payouts from the ESL Retirement Fund, “[d]espite the arguably unfair result of Defendants’ application of the offset, which caused the severe reduction or even elimination of many class members’ pensions.” However, the court of appeals held that the plan administrator abused its discretion by failing to find that the plan provided a guaranteed minimum monthly benefit of $20 for each year of service that could not be offset. The Ninth Circuit found as a matter of law that the plan text of the plan guaranteed this monthly minimum benefit and found defendants’ interpretation of the plan reading otherwise was an abuse of discretion. This aspect of plaintiffs’ claim for benefits was thus reversed and remanded to the district court for further proceedings. Accordingly, the district court’s summary judgment on plaintiffs’ fiduciary breach claim was reversed and remanded for trial, and the district court’s judgment in favor of defendants on the benefits claim was affirmed in part and reversed and remanded in part as explained above.

Plan Status

Third Circuit

Weller v. Linde Pension Excess Program, No. 23-1293, __ F. App’x __, 2024 WL 3887275 (3d Cir. Aug. 21, 2024) (Before Circuit Judges Krause, Restrepo, and Matey). Plaintiff Mark Weller sued his former employer, Linde North America, under ERISA and state law alleging his benefits under the company’s excess pension program were undercalculated because they did not treat a settlement payment he received from Linde as “covered earnings.” The district court concluded that the plan, which in its current form made payments annually rather than as lump-sum payments upon retirement or termination, was not governed by ERISA. Thus, the court granted summary judgment to Linde on the ERISA claim. Nevertheless, the district court let the contract-related state law claims proceed to a jury trial. At the end of the trial, the district court granted judgment to Linde on the remaining claims. It determined that Mr. Weller was not short-changed and that the benefits were appropriately calculated under the terms of the plan. Mr. Weller appealed both the pre-trial and post-trial decisions. The Third Circuit affirmed both in this decision. First, the court of appeals agreed with the district court that the excess pension program is not subject to ERISA, as the plan in its current form does not defer retirement income. The court of appeals went on to state that the plan does not fall under ERISA simply because Mr. Weller received his final payment under the program after his employment with the company ended. “As we observed in Oatway, the mere fact of some post-termination payments does not by itself make a benefit plan subject to ERISA.” Thus, the Third Circuit held that the district court did not err in finding that ERISA does not govern the plan. Nor did the Third Circuit identify any error in the district court’s judgment as a matter of law that the settlement payment was properly excluded from Mr. Weller’s calculated earnings. Under the unambiguous plan language, the Third Circuit held that the “additional or special compensation” Mr. Weller received as part of his legal settlement was “not considered ‘earnings’ for [the plan’s] purposes.” Accordingly, the court of appeals affirmed the district court’s decisions regarding both the ERISA claim and the state law contract claims.

Fourth Circuit

Bowser v. Gabrys, No. 3:23-CV-00910-KDB-SCR, 2024 WL 3894056 (W.D.N.C. Aug. 21, 2024) (Judge Kenneth D. Bell). Of all the types of employee benefit plans, severance plans are often the most contentious. Although somewhat counterintuitive, severance plans are considered welfare plans, not retirement plans, and they play by their own set of rules. Whether or not they are governed by ERISA depends on whether they require “an ongoing administrative program to meet the employer’s obligations.” This case provides an example of a district court deciding that a severance plan is not governed by ERISA because it does not require the type of ongoing administration contemplated by the Supreme Court in Fort Halifax Packing Co. v. Coyne. This action arose after Guest Services, Inc. (“GSI”) lost a contract it had with the federal government to Boeing. The then-CEO of GSI, Gerard T. Gabrys, informed the employees working on the government contract “that by leaving GSI to work for Boeing, rather than retiring from the workforce altogether, the employees were not eligible to receive money under GSI’s Termination Leave Pay policy.” The workers were not happy to hear this, and brought this action under both state law and ERISA seeking severance payments under the policy, as well as money that was taken out of their paychecks to fund benefits under the severance policy. GSI and Mr. Gabrys moved to dismiss plaintiffs’ complaint. Finding that the policy does not fall under ERISA and that the state law claims must be dismissed for lack of subject matter jurisdiction, the court granted the motion to dismiss. The determining factor was the fact “that payments under the Policy were made via one-time, lump-sum checks.” It was not significant to the court that severance payments are not automatic upon retirement, and that they instead require a judgment call about whether an employee was terminated “for cause.” The court concluded that such a determination “does not suggest meaningful discretion,” and “appears to be a purely ministerial task” of checking a personnel file, which does not imply an ongoing administrative scheme. “In short, the Policy, as alleged by Plaintiffs, is only a one-time lump-sum payment determined by a consistent formula that is offered to eligible retiring employees as part of Defendant’s existing infrastructure. The court therefore concludes that there is no ongoing administrative plan required in connection with GSI’s alleged obligations and thus no ERISA benefit plan.” The court further found that plaintiffs had not adequately alleged that $75,000 or more was in controversy, which was required in order for the court to exercise diversity jurisdiction over plaintiffs’ state law claims. Because ERISA did not apply, which would grant federal question jurisdiction, and because plaintiffs had not established diversity jurisdiction, the court ruled that it had no jurisdiction over the matter, and thus granted the motion to dismiss and closed the case.

Pleading Issues & Procedure

Sixth Circuit

Gil v. Bridgestone Americas, Inc., No. 3:22-cv-00184, 2024 WL 3862445 (M.D. Tenn. Aug. 19, 2024) (Judge Eli Richardson). Plaintiff David Gil was employed by Bridgestone Retail Operations LLC for decades and is a participant in its defined benefit ERISA pension plan. In this action, Mr. Gil alleges that the fiduciaries of the plan have breached their duties through repeated misrepresentations about the amount of Mr. Gil’s accrued pension benefit and that they breached their fiduciary duties and violated ERISA Section 502(c) by failing to furnish pension benefit statements or any governing plan documents at three-year intervals, or even upon request. Bridgestone Retail Operations LLC and its parent corporation, Bridgestone Americas Inc., moved to dismiss Mr. Gil’s complaint. The motion to dismiss was only granted in one small respect. The court granted Bridgestone Retail Operations LLC’s motion to dismiss the statutory penalties claim under Section 502(c) for failure to provide pension benefit statements, because the plan unambiguously names Bridgestone America Inc. the plan administrator and such claims can only be sustained against the plan administrator. However, in all other respects the court held that the complaint plausibly asserts its causes of action against the Bridgestone defendants. Defendants’ arguments for dismissal were viewed by the court as premature merits challenges more appropriately assessed at a later stage in litigation. Accordingly, Mr. Gil’s fiduciary breach and statutory penalty claims both survived defendants’ challenge.

Eleventh Circuit

United Healthcare Servs. v. Hosp. Physician Servs. SE, No. 1:23-CV-05221-JPB, 2024 WL 3852337 (N.D. Ga. Aug. 16, 2024) (Judge J.P. Boulee). United Healthcare Services, Inc. administers health care benefits for about one in four Americans – over 80 million people. It is easily the largest healthcare provider network in the United States. With great size comes great power, and the ability to pressure providers to join its healthcare network. Still, some providers resist. This action involves a group of interrelated out-of-network medical groups who have been suing United throughout the country for systematic under-reimbursement of emergency and non-emergency medical services provided to patients insured by United. United seeks declaratory relief related to the reimbursement of these out-of-network healthcare claims. “According to United, it faces the choice of: (1) complying with its obligations under federal law (ERISA) to calculate benefits in accordance with the payment rates and methodologies in the Plans when reimbursing Defendants for out-of-network services; or (2) acquiescing to TeamHealth’s contention that state law requires United to reimburse claims for Defendants at their full-billed charges… Ultimately, United seeks a declaration that any claim that seeks reimbursement in excess of the amount determined in accordance with the rates and methodologies stated in the Plans for out-of-network services are preempted by ERISA and the Supremacy Clause of the United States Constitution.” Defendants moved to dismiss the complaint for lack of subject matter jurisdiction. Defendants argued that there is no actual controversy between the parties because it has not sued United in Georgia. In the alternative, defendants argued that the court should exercise its discretion to deny declaratory relief to United. The court began with the controversy requirement. The court found that because United and the healthcare groups dispute reimbursement rates “there is a substantial [and live] controversy between parties with adverse legal interests.” Further, the court stated that it was “not persuaded by Defendants’ argument that the controversy requirement is not satisfied because Defendants have no present intent to sue United over claims arising in Georgia.” To the court, the record showed that the healthcare groups have submitted claims for services provided to patients insured by United in Georgia, that they have demanded full billed charges in each case, and that United has not paid the billed amounts but instead pays what it believes it is obliged to under the terms of ERISA-governed plans. Given these facts, the court was satisfied that United met its burden of proof to show jurisdiction, and the court therefore denied the motion to dismiss based on the argument that the case does not present a live controversy. Moreover, the court declined to exercise its discretion to deny declaratory relief. The court disagreed with defendants that “the preemption issue has already been clearly decided in their favor.” To the contrary, the court did not agree that the issue of ERISA preemption was a settled matter and stated that it saw no reason it should abstain. “Simply put, this is not a case where there is a real prospect of a non-judicial resolution of the dispute or where conservation of judicial resources weighs heavily in favor of declining to exercise jurisdiction.” Thus, the court denied defendants’ motion to dismiss.

Provider Claims

Seventh Circuit

CEP America-Illinois v. Cigna Healthcare, No. 23 C 14330, 2024 WL 3888879 (N.D. Ill. Aug. 21, 2024) (Judge Matthew F. Kennelly). CEP America-Illinois, a physician-owned emergency room staffing group, sued Cigna Healthcare and its affiliates in Illinois state court seeking to recover payment for emergency medical services provided to patients insured with Cigna-administered healthcare plans. CEP contends in its complaint that beginning in 2022, “without warning or reason,” Cigna began paying less than half of what it paid just one year earlier to out-of-network providers for the same emergency medical services, “paying well-below a reasonable rate for CEP’s noncontracted physician services.” Cigna removed the action to federal court, arguing that CEP’s claims are preempted by ERISA. The court in this decision remanded the case to state court for lack of federal jurisdiction. It concluded that the complaint failed the two-part Davila test of complete ERISA preemption. “CEP’s claims do not meet the second part of the test in Davila because they implicate legal duties independent of the ERISA plans at issue.” The court distinguished this action as a “rate of payment” healthcare dispute between a provider and insurer, and thus categorized the state law claims as “regarding the computation of contract payments or the correct execution of such payments,” which do not involve the terms of any ERISA welfare benefit plan. In fact, the court noted that payment rates “are not specified in the terms of the ERISA plan themselves,” and illustrated this by the fact that insurance companies and healthcare providers have to negotiate payment rates “separate and apart from the terms of ERISA plans between Cigna and its members.” Importantly, Cigna does not dispute that it is required to cover the emergency services at issue, and has in fact paid for the services, just at rates that CEP finds unreasonably low. Based on the foregoing, the court determined that the state law contract claims are not completely preempted by ERISA, and that removal was improper. The action will accordingly proceed, once again, in state court. 

Remedies

Sixth Circuit

Washington v. Lenzy Family Inst., No. 1:21-cv-1102, 2024 WL 3860317 (N.D. Ohio Aug. 19, 2024) (Judge Budget Meehan Brennan). Plaintiff Leonard Washington sued his former employer, the Lenzy Institute Inc., and the other fiduciaries and plan administrators of its healthcare plans, alleging violations of ERISA for failure to provide summary plan descriptions and annual funding notices and failure to pay healthcare premiums deducted from employees’ paychecks. Mr. Washington alleges that defendants’ action resulted in loss of health insurance coverage and caused him to incur out-of-pocket medical expenses. In his litigation, Mr. Washington sought statutory penalties under ERISA Section 1132(c)(1), equitable monetary relief equivalent to his withdrawn insurance premiums and out-of-pocket medical expenses, pre- and post-judgment interest, and attorneys’ fees and costs. Defendants have not appeared in the matter. As a result, Mr. Washington moved for default judgment and determination of damages. The court entered judgment in Mr. Washington’s favor on his ERISA claims. Mr. Washington alternatively asserted state law causes of action, but the court found it unnecessary to decide whether ERISA preempts these claims because Mr. Washington sought identical relief under his ERISA and state law claims. As a result, the court set the alterative state law claims aside. As for damages, the court tackled the statutory penalties and equitable relief separately. First, the court awarded statutory penalties of $26,675, which equaled $25 per day for defendants’ failure to provide funding notices and summary plan descriptions. On balance, the court found a $25 per day per violation award appropriate given the fact that it took Mr. Washington a few months to discover the lapse in coverage and his failure to specify what medical treatment he decided to forgo. The court also awarded Mr. Washington $3,450 for defendants’ fiduciary breaches. This amount represented $506.98 in out-of-pocket medical expenses and $2,943.24 in non-forwarded premium payments. In addition, the court awarded the entirety of plaintiffs’ requested $50,791.50 in attorneys’ fees and costs of $2,592.13. The court concluded that Mr. Washington’s success in litigation, defendants’ ability to satisfy a fee award, the degree of bad faith and culpability present, and the deterrent factor of a fee award overwhelmingly supported granting the request for attorneys’ fees and costs. The court also concluded that counsel’s hourly rates of between $225-$250 per hour were reasonable. Finally, the court awarded pre- and post-judgment interest, both at a rate of 4.45%. Pre-judgment interest was awarded only on the compensatory portion of Mr. Washington’s award, not his statutory penalty award, but post-judgment interest was awarded on his combined total sum of $84,030.09. Accordingly, Mr. Washington found success and was made whole after defendants’ actions caused him and his family financial harm.

Venue

Ninth Circuit

Doe v. Blue Cross Blue Shield Healthcare Plan of Ga., No. CV-24-00476-PHX-MTL, 2024 WL 3898657 (D. Ariz. Aug. 22, 2024) (Judge Michael T. Liburdi). Plaintiff John Doe sued Anthem Blue Cross and Blue Shield under ERISA Section 502(a)(1)(B) after it refused to cover emergency air ambulance services required to save his young daughter’s life. Defendant moved to transfer venue to the Northern District of Georgia. John Doe did not file a response to the motion. While the court stated that it could have granted the motion summarily for this reason, it nevertheless addressed the motion to transfer on its merits, and agreed that transferring this case was in the interest of justice. The air ambulance took the child from a hospital in Phoenix, Arizona, to a children’s hospital in Atlanta, Georgia where lifesaving surgery was performed. Given the connection to Atlanta, the court determined that the transferee district was a more suitable and convenient choice of venue. And while the court recognized that plaintiff’s chosen forum was in Arizona, the court nevertheless afforded this fact little weight because “Plaintiff is a Georgia citizen,” and the family was only in Phoenix for vacation. Although the child’s medical emergency began in Arizona, the court stated that no other relevant events or contacts connected the parties to the District of Arizona at all. Thus, on balance, the court saw the Northern District of Georgia as the better choice of venue “based upon the convenience of the parties and witnesses and the interests of justice.” Blue Cross’s motion to transfer was accordingly granted.