Chavez v. Plan Benefit Servs., No. 22-50368, __ F. 4th __, 2023 WL 5160393 (5th Cir. Aug. 11, 2023) (Before Circuit Judges Wiener, Stewart, and Engelhardt)

Judicial decisions in ERISA cases usually do not have repercussions in the larger legal world, but this case presents a potential exception. The issue addressed by the Fifth Circuit here was the interplay between standing and class certification rules.

A plaintiff seeking class certification often wishes to represent other class members who may have suffered similar, but not identical, harms. When evaluating this issue, should a court decide whether the plaintiff has standing to assert claims relating to those other class members at the outset? Or should it decide this issue at the class certification stage in addressing the scope of the proposed class?

The plaintiffs here were employees of the Training, Rehabilitation & Development Institute, Inc. (TRDI). TRDI contracted with the defendants, collectively known as Fringe Benefit Group (FBG), for various services connected with its employees’ benefits.

Under TRDI’s arrangement with FBG, TRDI disbursed benefits to its employees through two trusts, one which covered retirement benefits (the Contractors and Employee Retirement Trust, or CERT), and one which covered health and welfare benefits (the Contractors Plan Trust, or CPT). FBG managed the trusts and had the power to enter into contracts imposing fees and charges on the trusts and plans it administered. The plaintiffs each had accounts into which TRDI paid contributions, out of which FBG retained a percentage for administration services.

In their complaint, the plaintiffs alleged that these fees were unreasonably high and that FBG mismanaged TRDI’s plan, as well as other benefit plans covered by the CERT and CPT trusts, in violation of ERISA.

The plaintiffs filed a motion for class certification, which presented a problem for the district court. In order to grant the motion, the district court had to find that the plaintiffs had “standing to sue FBG on behalf of unnamed class members from different contribution plans.” The district court ultimately ruled that the plaintiffs had both constitutional and statutory standing to sue.

The Fifth Circuit reversed, concluding that the district court’s class action analysis was not sufficiently rigorous. On remand, the district court certified two classes which were tailored more narrowly than before, but still represented participants from different plans. FBG appealed once again, maintaining its argument that the plaintiffs lacked standing to bring their claims.

In this decision, the Fifth Circuit opened by noting that there was a circuit split over how courts should analyze standing issues in class actions. If a class representative wants to litigate over harms that other class members suffered but were not identical to the ones the representative suffered, when should courts address the “disjuncture between the harm that the plaintiff suffered and the relief that she seeks”?

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

Ultimately, the Fifth Circuit dodged the issue of which approach was correct. Instead, it used both approaches in addressing the facts of the case, and ruled that the plaintiffs could proceed under either.

Under the “class certification approach,” the Fifth Circuit ruled that plaintiffs easily cleared the standing bar. The court found that the plaintiffs had demonstrated injury in fact by alleging that “FBG abused its authority under the Master Trust Agreement by hiring itself to perform services paid with funds from the CERT and CPT trusts, effectively devaluing the trusts and retirement benefits that Plaintiffs otherwise would have accrued with their employer.” They also established that their injury was traceable to FBG’s conduct because FBG had direct control over the trusts and the agreement with their employer. Also, their injury would be redressable by an award of monetary damages or other relief.

Under the “standing approach,” the Fifth Circuit also found that the plaintiffs could proceed. The court found that the plaintiffs “have undeniably suffered the same kind of loss as the unnamed class members because of FBG’s alleged misconduct,” and thus the “set of concerns here are identical between Plaintiffs and the unnamed class members: the return of trust funds that each plaintiff would otherwise have been entitled to if FBG had not violated ERISA.” In other words, the plaintiffs and the proposed class “have the same interest and suffer[ed] the same injury.” The court found that even if the other class members had different agreements with different employers, the harm was the same because it “occurred directly from FBG’s misconduct pertaining to the trusts that it required participation in[.]”

Having concluded that the plaintiffs had standing, the Fifth Circuit then turned to the district court’s class certification order. FBG did not challenge whether the plaintiffs could adequately represent the class under Federal Rule of Civil Procedure 23(a), but did challenge the district court’s certification under Rules 23(b)(1) and (b)(3).

Under Rule 23(b)(1), FBG argued that the proposed class “involves vastly different plans and fees” and that an accounting for the plaintiffs’ claims would not be dispositive of the claims of other plan members. The Fifth Circuit disagreed, noting that FBG’s pricing scheme was either “uniform or amenable to a pricing grid,” and that the plaintiffs were seeking not only monetary relief, but also equitable remedies, which “undoubtedly involves the entire class – or any other members of the CERT and CPT trusts[.]”

Under Rule 23(b)(3), the Fifth Circuit agreed with the district court that there were “common questions of law and fact as to whether FBG owed fiduciary duties to the Plaintiffs and the other class members by virtue of their role in managing the CERT and CPT trusts.” FBG argued that “individualized issues of fee excessiveness predominate this dispute,” and thus because of the “wide variety of different fees and plans,” the case would turn into “a series of mini-trials” regarding FBG’s fiduciary status as to each plan.

The Fifth Circuit rejected this argument, noting that “each plaintiff would certainly produce that plaintiff’s own contract, which expressly makes FBG a fiduciary by incorporating the Master Trust Agreement.” The court further rejected FBG’s argument that class certification would deprive it of due process rights, noting that the district court acted well within its discretion “by acknowledging Plaintiffs’ plan to establish FBG’s liability using an arithmetic, formulaic method.”

As a result, the second time was the charm, as the Fifth Circuit affirmed the district court’s class certification order in its entirety. In doing so, the court may not have resolved the “disjuncture” between standing and class certification, but it has flagged the issue once again for those seeking to take the issue up to the Supreme Court.

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

Breach of Fiduciary Duty

Third Circuit

Seibert v. Nokia of Am. Corp., No. 21-20478 (ES) (AME), 2023 WL 5035026 (D.N.J. Aug. 8, 2023) (Judge Esther Salas). Seven participants of the Nokia Savings/401(k) Plan bring this putative class action against Nokia of America Corporation, its board of directors, and the 401(k) committee for breaches of their fiduciary duties of prudence and monitoring under ERISA. Specifically, plaintiffs allege that defendants breached their duty of prudence by failing to review the plan’s investment portfolio to ensure that the options were prudent in terms of their expense ratios. Plaintiffs pointed to seventeen funds offered by the plan that had excessive cost and management fees. Additionally, plaintiffs allege that the participants were subjected to excessive recordkeeping and administrative costs. In their complaint, plaintiffs calculated that the per participant fees charged during the relevant period ranged from $76.59 to $116.26. They maintain that similar mega plans with billions of dollars in assets under management and tens of thousands of plan participants charged participants only around $20-30 in fees. Finally, plaintiffs believe that Nokia and the board failed to monitor the other fiduciaries. Defendants moved to dismiss the complaint. In this order, the court granted in part and denied in part the motion to dismiss. It began with the excessive expense ratio claims. The court agreed with defendants that it could not infer that the process to review the investment portfolio was flawed and imprudent because the comparators plaintiffs used did not constitute a meaningful benchmark. “In effect, Plaintiffs have done little more than allege that cheaper alternative investments existed in the marketplace. This is not sufficient to adequately plead a claim for breach of the duty of prudence.” Applying a “context-specific inquiry,” the court stated that more information about the comparator plans’ investment styles, performance, and returns would be necessary in order to infer that cheaper was indeed better. Accordingly, the court dismissed the imprudence and monitoring claims premised on the failure to adequately review the investment portfolio to ensure the investments were prudent in terms of cost. However, these claims were dismissed without prejudice, and plaintiffs were allowed to amend their complaint to address these deficiencies. Next, the court turned to the recordkeeping and administrative fee claims. Unlike the expense ratio claims, the court was satisfied that plaintiffs plausibly alleged that the fees were excessive, astronomical even, particularly when considering plaintiffs’ lack of access to full plan data. Viewing the complaint in the light most favorable to plaintiffs, the court was unwilling to scrutinize plaintiffs’ calculations or determine whether the comparator plans were inappropriately cherry-picked as defendants argued. The court also stated that plaintiffs sufficiently alleged that defendants failed to regularly solicit bids for lower cost administrative services, and while competitive bidding is not required under ERISA, failure to do so is often indicative of imprudence. Thus, defendants’ motion to dismiss the recordkeeping and administrative fee imprudence and monitoring claims was denied.

Fourth Circuit

Reed v. MedStar Health, Inc., No. JKB-20-1984, 2023 WL 5154507 (D. Md. Aug. 9, 2023) (Judge James K. Bredar). Plaintiff Elsa Reed, individually and on behalf of the MedStar Health, Inc. Savings 403(b) Plan and a certified class of participants and beneficiaries of the plan, brings this action against the plan’s fiduciaries for breaches of their duties under ERISA. Ms. Reed claims that the participants of the plan suffered losses as a result of defendants’ imprudent inclusion of a series of challenged target date funds as investment options in the plan, which were risky, performed poorly, and had high fees and costs associated with them and their active management. Several pre-trial motions were before the court here. Defendants moved to strike plaintiff’s jury demand, and also filed motions to exclude the opinions and testimony of plaintiff’s two experts. In addition, plaintiff moved for leave to file a second amended complaint to include additional factual allegations she obtained through the discovery process. In this order the court granted the motion to strike the jury demand, granted in part and denied in part the Daubert motions, and granted the motion for leave to file an amended complaint. The court agreed with defendants and “the overwhelming weight of authority” of the courts nationwide that ERISA breach of fiduciary duty claims like those asserted here are equitable in nature and therefore not within the purview of the Seventh Amendment’s right to a jury trial. As for the expert testimonies, the court denied defendants’ motion to exclude the testimony of plaintiff’s expert Gerald Buetow, whose report concerns the calculation of losses suffered by the plan as a result of the inclusion of the challenged funds. The court found that Mr. Buetow used a reliable method and applied said method to the facts at issue to reach his calculations. Thus, the court denied the motion to exclude Mr. Buetow’s testimony and stated that defendants’ “various challenges to Buetow’s damages calculation methodology are more properly resolved on cross-examination.” However, the court reached a different result with regard to plaintiff’s other expert, Michael Geist. Mr. Geist’s report testified about the reasonable market rates for fees and calculated the plan’s losses incurred as a result of the allegedly excessive fees. The court excluded the portions of Mr. Geist’s report that concerned specific calculations of the losses. It held that Mr. Geist did not cite the necessary “data, scholarly publication, or other source[s]” relied on to make his calculations, instead basing his assessments on his own experience. The court found this assertion of expertise falls short of the necessary standards for expert reports and that it could not adequately review or scrutinize the pricing information relied on. As a consequence, the court found that Mr. Geist’s “specific calculation of losses amounts to no more than conjecture or speculation.” Nevertheless, the court did not exclude Mr. Geist’s opinions as to the standard industry practices for obtaining reasonable fees. Finally, the court concluded that Ms. Reed satisfied the “good cause” standard to grant her motion to amend her complaint beyond the original deadline set forth in the scheduling order, because the information she sought to add only became available to her after the deadline ended during the discovery process. Moreover, the court agreed with plaintiff that these additional facts she seeks to add to her complaint support her existing claims asserted in the action from the beginning regarding the recordkeeping fees. The court disagreed with defendants that granting Ms. Reed’s motion would prejudice them in any material way. Therefore, the court granted the motion to amend and allowed Ms. Reed to add the additional factual allegations she sought to include.

Seventh Circuit

Lysengen v. Argent Tr. Co., No. 20-1177, 2023 WL 5158078 (C.D. Ill. Aug. 10, 2023) (Judge Michael M. Mihm). In this employee stock ownership plan (“ESOP”) litigation, a former employee of Morton Buildings, Incorporated and a participant in its ESOP, as well as an older 401(k) plan that had an ESOP option (“KSOP”), sued Argent Trust Company and the selling shareholders for breaches of fiduciary duties and prohibited transactions under ERISA, asserting that the ESOP overpaid for the stock it purchased. Originally, plaintiff sought to represent a class under Rule 23. However, her motion for certification was denied by the court, which held that there were irreconcilable conflicts between the ESOP participants which made certification of the class impossible. Specifically, the court identified at least three sub-groups with conflicting interests – members of the company’s old KSOP who had protected stock price status, members of the KSOP who did not have protected stock price status, and members of the ESOP who were never members of the KSOP plan. As a result, the court concluded that the proposed class members were not identically situated due to these complicating factors and that their interests were not completely aligned. Accordingly, the court declined to certify the class, and upheld its decision when plaintiff moved for reconsideration. Following the certification ruling, defendants moved for summary judgment. They argued that because plaintiff cannot proceed on a class-wide basis, she also could not proceed in a representative capacity under ERISA Section 502(a)(2). Plaintiff moved for partial summary judgment, seeking a judgment to the contrary – that notwithstanding the court’s decision regarding certification, she may still proceed with her claims for plan-wide relief including seeking a potential judgment to recover losses to the plan, to disgorge profits earned by defendants, and other forms of equitable relief available in a representative capacity. The court heard oral argument on the topic. In this written order it granted plaintiff’s partial summary judgement motion and denied defendants’ competing summary judgment motion. “While the Court recognizes its class certification findings, it is important to note that at this juncture, the Plaintiff is seeking a payment for potential losses to the ESOP as a whole that result from the alleged overpayment of stock. If the Court found in favor of the Plaintiff, the requested relief would maximize the value of the entire ESOP, and therefore, benefit all ESOP participants within the meaning of Section 502(a)(2).” The court expressed that it would not issue any judgment or relief that distinguishes between the ESOP and KSOP participants or their individual interests and injuries. Accordingly, the problems that existed for the purposes of certifying the class were resolved by the court’s decision here to allow the plaintiff to proceed with plan-wide claims in a representative capacity on the issue of whether the stock purchased during the ESOP transaction was purchased for fair market value. To further protect the other plan participants, the court ordered plaintiff to inform the ESOP participants of this litigation and to keep them updated on its progress via a website. Moreover, should the parties reach a settlement, the court noted that it would likely employ additional safeguards to protect the absent plan beneficiaries and their interests.

Su v. Fensler, No. 22-cv-01030, 2023 WL 5152640 (N.D. Ill. Aug. 10, 2023) (Judge Nancy L. Maldonado). Secretary of the United States Department of Labor, Julie A. Su, has sued the trustees and fiduciaries of the United Employee Benefit Fund Trust for breaching their fiduciary duties and using the fund assets in prohibited transactions that were against the interests of the plan and its beneficiaries, causing millions of dollars of losses to the fund. In addition to this lawsuit, several other federal and state actions are pending that relate to the fund’s operations and include the same essential underlying facts and challenged conduct at issue here. The Secretary has moved for a temporary restraining order and preliminary injunction, requesting that the court issue an order removing defendants from their position as trustees and appointing an independent fiduciary to take over the fund’s management during the pendency of this lawsuit. Ms. Su alleges that the assets in the fund are dwindling at an alarming rate, and that irreparable harm will result absent this relief. Specifically, she contends that the fund’s assets have reduced from $22 million in 2018, when she first became aware of the conduct at issue here, to approximately $6 million today. She argues there is a substantial risk that the fund’s money will be drained completely if no intervention is taken, as defendants are using the assets as their own piggy-bank to cover the costs of litigating the aforementioned actions against them. The court agreed with the Secretary that simple math supports her “well-founded” position that there is a high risk the fund’s assets will be depleted if defendants retain control over the plan in the interim. The court stated that it “agrees with the Secretary that, at a minimum, the Trustee Defendants’ conduct suggest they are prioritizing the Fund’s payment of substantial legal and administrative fees, which, given the precarious nature of the Fund’s assets, creates a risk of irreparable harm to the Fund’s participants.” Not only did the court agree that a risk of irreparable harm exists, it also found that because the Secretary is only seeking equitable relief, no traditional legal remedy exists that would be adequate in place of issuing the requested injunction. Additionally, the court was satisfied that Ms. Su meets the “low threshold” necessary to demonstrate a likelihood of success on the merits of her action. Finally, the court concluded that the issuance of an injunction appointing an independent fiduciary would serve both the public interest and the congressional goals of ERISA. For the foregoing reasons, the Secretary’s motions were granted by the court.

Eighth Circuit

Fitzpatrick v. Neb. Methodist Health Sys., No. 8:23CV27, 2023 WL 5105362 (D. Neb. Aug. 9, 2023) (Judge Robert F. Rossiter, Jr.). Former employees of Nebraska Methodist Health System, Inc. have sued the fiduciaries of Nebraska Health’s ERISA-governed defined contribution retirement plan for breaches of their fiduciary duties of prudence and monitoring. Plaintiffs allege that defendants failed to engage in an appropriate process managing the plan because they selected imprudent, underperforming investment options and failed to replace these options over time despite their continued underperformance. Because of these improper investment options, plaintiffs maintain that they suffered millions of dollars in losses in their retirement savings. Defendants moved to dismiss for lack of standing and for failure to state a claim. The court began by addressing Article III standing first. It agreed with plaintiffs that they alleged sufficient injuries to their own plans to assert plan-wide claims even with respect to funds they did not personally invest in. The court concluded that the Supreme Court’s decision in Thole v. U.S. Bank N.A. was distinguishable from the facts here because this plan is a defined contribution rather than a defined benefit plan and this “present challenge is more akin to the trust-based theory of standing discussed in Thole, rather than the defined-benefit plan actually decided.” However, the court did identify an issue with plaintiffs’ standing regarding prospective injunctive relief. As plaintiffs are former plan participants, the court concluded that they lack standing to pursue injunctive relief as any injunctive relief would not affect them. With the standing issues addressed, the court moved on to the merits and sufficiency of plaintiffs’ breach of fiduciary duty claims. Despite rejecting “the defendants’ bright-line rule that allegations of underperformance alone cannot state a claim,” the court agreed with defendants that plaintiffs needed to provide meaningful benchmarks for the alleged underperformance in order to state colorable claims. The court found that plaintiffs had not done so here. Instead, it found plaintiffs’ comparable Morningstar and S&P Indexes to be insufficient benchmarks as the complaint did not specify what the asset allocations, investment strategies, or risk profiles were for each of the funds it used to compare. Without such details, the court stated that plaintiffs’ allegations of imprudence, while possible, were not plausible. Accordingly, the court granted the motion to dismiss the imprudence claims, as well as the wholly derivative monitoring claims and did so with prejudice.

Discovery

Second Circuit

Berkelhammer v. Voya Institutional Plan Servs., No. 3:22-mc-00099-MEG, 2023 WL 5042526 (D. Conn. Aug. 8, 2023) (Magistrate Judge Maria E. Garcia). A class of participants and beneficiaries of a 401(k) plan have sued the plan’s sponsor, Automatic Data Processing, Inc., and several related entities for breaches of their fiduciary duties under ERISA. Automatic Data Processing hired Voya Retirement Advisors, LLC to provide services to the plan. Those parties entered into an Advisory and Data Services Agreement. Plaintiffs moved to compel Voya Retirement Advisors to produce this agreement and all documents describing the payments it made to a subcontractor that it hired as a subadvisor for the plan’s managed accounts. Voya opposed producing these documents. Plaintiffs argued that these documents were relevant to their claims and that they are not shielded by trade secret protections. The court disagreed on both counts. It found that these subcontracting documents and the agreement itself are removed and irrelevant to plaintiffs’ claims against the plan. “[T]he relevant comparative information to Plaintiffs is what [Voya Retirement Advisors] charged the Plan relative to the market, relative to its competitors.” The court also found that the documents are confidential and proprietary in nature as they describe sensitive financial terms. “In light of the confidential nature of the documents and what can be considered most favorably to Plaintiffs as marginal relevance, almost any burden is undue. The burden of producing the irrelevant, confidential information at issue certainly is,” the court held. Thus, the court concluded that the requested documents were not discoverable and therefore denied the motion to compel their production.

ERISA Preemption

Fourth Circuit

C Evans Consulting LLC v. Sortino Fin., No. GLR-21-2493, 2023 WL 5103725 (D. Md. Aug. 8, 2023) (Judge George L. Russell, III). Plaintiffs Cecelia Evans Laray and her company C Evans Consulting LLC have sued a series of related financial services institutions as well as several individuals employed at those firms for negligence, unjust enrichment, and declaratory judgment. Plaintiffs allege in the operative complaint that defendants recommended and sold an inappropriate 412(e)(3) ERISA plan to them without disclosing relevant information. They claim that this misleading sales pitch left them in financial strain leaving them unable to properly fund the plan in order to terminate it, which has caused problems with the IRS. Plaintiffs further allege that defendants benefitted greatly financially by selling them the plan under false pretenses. Plaintiffs seek hundreds of thousands of dollars in compensatory damages and for defendants to disgorge all fees and commissions they earned in relation to the plan. Defendants moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Defendants argued that the complaint must be dismissed because the state law causes of action are preempted by ERISA. The court agreed. It concluded that plaintiffs have standing to sue under ERISA, that their claims could have been brought as equitable relief claims under Section 502(a)(3), and that the state law claims are not capable of resolution without interpreting the ERISA plan. “Despite Plaintiffs’ contention that their claims do not relate to the administration of the Plan, but rather to the marketing and sale of the Plan before it was implemented, the [complaint] still includes allegations regarding the Plan’s specific deficiencies and how those deficiencies have caused Plaintiffs substantial monetary harm. There is no way for a court to resolve whether Plaintiffs are correct about the Plan’s alleged deficiencies – or whether the Plan’s issues were prompted by or resulted in negligence or unjust enrichment – without interpreting the Plan.” Accordingly, the court concluded that ERISA preempts the claims because they challenge the administration of the ERISA-governed plan. Thus, the court granted the motions to dismiss.

Ninth Circuit

Cal. Spine & Neurosurgery Inst. v. Fresenius U.S., Inc., No. 21-cv-03107-EMC, 2023 WL 5021782 (N.D. Cal. Aug. 7, 2023) (Judge Edward M. Chen). Before performing complex spinal surgery on an insured patient, plaintiff California Spine and Neurosurgery Institute sought pre-approval of the surgery and coverage from the Fresenius Medical Care Holdings, Inc. ERISA-governed healthcare plan, and its administrator, United Healthcare. On a phone call between a United representative and a staff member at the surgery center, United promised that it would pay for the medically necessary surgery at the usual and customary reimbursement rate, the rate for the customary charges for similar services in the geographic area. Given this preapproval and payment promise, California Spine went ahead and performed the surgery. It then billed the plan what it believes is the usual and customary rate for this type of complex spinal surgery –  $83,000. The plan ultimately paid plaintiff only $7,320.44 for the treatment. California Spine maintains that this amount is far below average rates for this medical service in the geographic area and therefore holds that the payment is a violation of the plan’s promise to pay it the usual and customary rates for its services. As a result, California Spine sued Fresenius Medical for promissory estoppel to recover damages for the underpayment. Defendant moved for judgment on the pleadings, contending that the promissory estoppel claim is preempted by ERISA. In this decision the court denied defendant’s motion and laid out why it believes the claim is based on an independent legal duty and thus not preempted. “Whether a claim is premised on an ERISA plan turns on whether the source of the plaintiff’s claim is predicated on the ERISA plan. In other words, the inquiry is whether the defendant’s alleged obligation – as asserted by the plaintiff – is (1) based on the ERISA plan or (2) based on some legal duty independent of the plan.” Here, the court found the source of the legal duty to be the administrator’s promise, not the plan itself. The fact that the plan states that it allows for usual and customary payments for out-of-network providers did not change this calculation. The court reasoned that the term “usual and customary rates” is widely used in the healthcare and insurance industry and that someone could therefore make a compelling argument that the use of this term does not in and of itself incorporate the terms of the plan. However, even assuming the promising of payment at the usual and customary rate did incorporate the plan terms, the court found that this connection to the plan was too tenuous to invoke ERISA preemption because it would necessitate nothing more than a cursory examination of the plan. The court expressed caution at applying ERISA’s broad preemption powers to cases like this for fear of creating a Catch-22 situation where providers have no way of challenging underpayments or denials when they lack standing to bring ERISA claims and their state law claims are preempted by ERISA. The court stated that its approach is “consistent with ERISA’s goals of protecting plan participants” and encouraging doctors to provide care to patients. Accordingly, the court allowed the provider’s promissory estoppel claim to proceed and denied defendant’s motion for judgment on the pleadings.

Life Insurance & AD&D Benefit Claims

Second Circuit

LePino v. Anthem Blue Cross Life & Health Ins. Co., No. 22-cv-4400 (NSR), 2023 WL 5001439 (S.D.N.Y. Aug. 4, 2023) (Judge Nelson S. Roman). Plaintiff Tricia LePino’s husband, John Capotorto, III, died on February 22, 2022, from acute intoxication due the combined effects of heroin, fentanyl, and xylazine (a non-opioid horse tranquilizer, commonly referred to as Tranq, sometimes cut into street drugs). Following her husband’s overdose, Ms. LePino submitted a claim for life insurance benefits under Mr. Capotorto’s ERISA-governed policy. Her claim was denied by defendant Anthem Blue Cross Life and Health Insurance Company pursuant to the plan’s broad exclusion for deaths resulting from, either wholly or partly, the influence of any controlled substance. In this action, Ms. LePino seeks to recover benefits under the plan. Anthem moved to dismiss for failure to state a claim based on the theory that no benefit is owed to Ms. LePino because of the unambiguous language of the plan’s exclusion for payment of benefits for drug-related deaths. Anthem’s motion was granted, without prejudice, by the court in this decision. It agreed with defendant that the insured’s death falls squarely within the plain meaning of the unambiguous exclusionary provision. The court concluded that “a natural reading of the Exclusionary Provision indicates that it applies to any death caused by an incident which the Insured was affected by drugs.” Ms. LePino’s preferred reading of the exclusion – applying the language only to deaths resulting from accidents that occur while a person is under the influence of drugs – was viewed by the court as “overly narrow.” Moreover, the court stated that the exclusion covered decedent’s death despite the fact that it does not expressly use the term “overdose.” Finally, the court found the language of the policy exclusion here distinguishable from other ERISA life insurance cases that similarly involved narcotic overdoses and drug exclusions where plaintiffs’ claims were found to have met Rule 8 pleading standards, because “Defendant’s Policy plainly excludes deaths, caused, even in any part, for being under the influence of drugs.” Accordingly, the court found the exclusion applies here and therefore granted the motion to dismiss. Ms. LePino was given one month to file an amended complaint should she wish to do so.

Medical Benefit Claims

Second Circuit

Kwasnik v. Oxford Health Ins., No. 22-CV-4767 (VEC), 2023 WL 5050952 (S.D.N.Y. Aug. 8, 2023) (Judge Valerie Caproni). Plaintiff Fiana Kwasnik is covered under an ERISA healthcare policy insured by defendant Oxford Health Insurance, Inc. Ms. Kwasnik sought IVF treatment for infertility issues and submitted a claim to her plan to cover her round of fertility treatments which included hormone injections, an egg retrieval, genetic testing, and egg fertilization. Her plan expressly covers infertility treatments. However, her claim for IVF treatment was denied by the plan because Ms. Kwasnik had previously retrieved and fertilized eggs which had resulted in preserved frozen embryos, called oocytes. The plan insisted that Ms. Kwasnik could use these oocytes, rather than undergo a new round of treatments. Ms. Kwasnik had paid for this previous treatment herself, without the benefit of her health insurance plan. She maintains that the plan was not allowed to rely on the existence of her previous fertility treatments to deny a claim for her current treatment on medical necessity grounds. She appealed the adverse benefit determination. After the denial was upheld, Ms. Kwasnik sought an external review of the denial under New York state law. Her review was assigned to Island Peer Review Organization, Inc. Island Peer upheld the denial. Ms. Kwasnik then commenced this ERISA action, asserting claims against both Oxford and Island Peer. In essence, she argues that the denial of her IVF treatment was improper, and the external review wrongfully upheld the denial. Ms. Kwasnik brings claims pursuant to Sections 502(a)(1)(B) and 502(c) seeking money damages, declaratory judgment, injunctive relief, and attorneys’ fees. Defendants filed separate motions to dismiss for failure to state a claim. Oxford sought dismissal of Ms. Kwasnik’s Section 502(c) and declaratory judgment claims (but not the claim for benefits). Island Peer sought dismissal of all of the claims asserted against it. The motions to dismiss were granted in this order. The court began with Oxford’s motion to dismiss the claim for failure to provide plan documents upon request. The court found that Ms. Kwasnik could not state this claim against Oxford because Section 502(c) applies only to plan administrators, or alternatively plan sponsors, and Oxford by definition is not a plan administrator under ERISA. Therefore, even assuming, as the court must at the pleadings, that Oxford failed to provide Ms. Kwasnik with the requested documents, the court found that it cannot be held liable for that inaction. Next, the court dismissed the declaratory judgment claim against Oxford, concluding that it was duplicative of her claim for benefits. Accordingly, Ms. Kwasnik was left with only her benefits claim against Oxford. The court then turned to Island Peer’s motion to dismiss. There, it found that the statutory language of New York’s external review insurance law shields Island Peer from lawsuits unless it was grossly negligent or acted in bad faith. Because Ms. Kwasnik did not allege either gross negligence or bad faith, the court agreed with Island Peer that her claims against it could not be sustained. Therefore, its motion too was granted.

Fourth Circuit

T.S. v. Anthem Blue Cross Blue Shield, No. 1:23-cv-60-MOC, 2023 WL 5004499 (W.D.N.C. Aug. 3, 2023) (Judge Max O. Cogburn Jr.). Plaintiffs T.S. and J.S. sued their self-funded ERISA welfare benefits plan, and the plan’s claims administrator, Anthem Blue Cross Blue Shield, after the family’s claim for J.S.’s stay at a residential treatment center was denied. Plaintiffs asserted two causes of action, a claim for benefits under Section 502(a)(1)(B), and a claim for equitable relief under Section 502(a)(3) for violation of the Mental Health Parity Addiction Equity Act. With regard to their Parity Act claim, plaintiffs averred that Anthem’s clinical criteria for coverage of mental health residential programs are more stringent than its analogous medical or surgical benefits because their mental health policies require patients to “fail-first” by attempting treatment at lower levels of care. They argued that these guidelines violate generally accepted standards of mental healthcare best practice. Anthem moved to dismiss the Parity Act claim. Its motion for partial dismissal was granted by the court in this order. The court agreed with defendant that Fourth Circuit precedent does not allow for simultaneous pleading of claims under Sections 502(a)(3) and 502(a)(1)(B) where, as here, plaintiffs have an adequate legal remedy through their benefits claim and the two claims are premised on the same injury. “Plaintiffs’ underlying injury is the same – Defendants’ denial of benefits under the plan. Plaintiffs have a cause of action against the Plan directly under § 1132(a)(1)(B). ‘Thus, relief through the application of Section 1132(a)(3) would be inappropriate.’” Accordingly, the court granted the motion to dismiss the equitable relief claim.

Pension Benefit Claims

Ninth Circuit

Iannacone v. Int’l Bhd. of Elec. Workers Pension Benefit Fund, No. CV-22-01599-PHX-DWL, 2023 WL 5017008 (D. Ariz. Aug. 4, 2023) (Judge Dominic W. Lanza). Pro se plaintiff Quido Iannacone brought suit against the International Brotherhood of Electrical Workers Pension Benefit Fund to challenge the termination of his monthly pension benefits. Defendant ceased issuing the payments after it learned that Mr. Iannacone was continuing to pay his union dues. It informed him that he could not have his pension benefits reinstated while he continued to pay these dues. Mr. Iannacone maintained that he kept paying his dues to allow him to speak at local union meetings and to run for union office, things that were important to him. However, Mr. Iannacone had ceased working in the electrical trade, and because he never violated the plan’s prohibition on work, he believed that he qualified for continued monthly payments under the terms of the plan. Nevertheless, the union steadfastly disagreed. It argued that it had a long-standing policy of precluding active dues-paying union members from receiving pensions, and that retirees have always been precluded from participating in the affairs of the local unions. The pension fund moved for summary judgment. The court resolved the dispute in favor of defendant, granted its motion for judgment, and affirmed the adverse benefit decision. It concluded that under abuse of discretion review the termination was reasonable and consistent with the fund’s long held eligibility rules, which themselves were a reasonable reading of the plan language. Further, the court agreed with defendant that “there was no ‘wholesale and flagrant’ procedural violation that deprived Plaintiff of a full and fair review,” despite the fact that the denial letter did not notify Mr. Iannacone of his right to sue under ERISA Section 502. The court found that because the letter “was not the final step in the claim process – any violation was relatively minor.” This was particularly true here, the court stated, because Mr. Iannacone “was successful in timely filing this action.” Therefore, the court declined to alter the standard of review to de novo. In sum, the court expressed that it was sympathetic to Mr. Iannacone over the plan’s requirement that union members cease working and stop actively participating in local union activities in order to obtain pension benefits, but that the terms of the plan and the union’s practice were clear that these actions were prerequisites for benefit eligibility, and until he met the requirements Mr. Iannacone was not entitled to benefits. Accordingly, the court affirmed the fund’s decision.

Plan Status

Fifth Circuit

Edwards v. Guardian Life Ins. of Am., No. 1:22-CV-145-KHJ-MTP, 2023 WL 5120246 (N.D. Miss. Aug. 9, 2023) (Judge Kristi H. Johnson). In 2022, Pam Edwards died from terminal cancer. After her death, her widower, James Edwards, was informed by the family’s attorney that his wife was insured under a group life insurance policy she had purchased in 2007 for the hair salon she owned and operated with Guardian Life Insurance of America. Mr. Edwards subsequently submitted a claim for benefits under the $85,000 policy. His claim was denied. Guardian maintained that unrelated to her terminal cancer diagnosis, it had very recently cancelled the hair salon’s ERISA plan because not enough of the salon’s employees maintained insurance and the company had therefore fallen below its required participation level. Guardian claims that it sent letters to the salon informing it of the termination. The salon and the attorney could find no record of said letters. Believing that the termination of the life insurance policy was a false justification to deny the claim for benefits, Mr. Edwards commenced this action against Guardian. He asserted a claim for benefits under ERISA and also a claim under Mississippi state law. Guardian moved for partial summary judgment on the issue of the plan’s status as an ERISA-governed plan. It requested declaratory judgment from the court holding that the plan is governed by ERISA and that the state law contract claim was therefore preempted by ERISA. The court granted the partial summary judgment motion. It agreed that the plan qualified as an ERISA plan, and that the salon’s employees did not qualify as independent contractors because Ms. Edwards controlled their hours and pay, and owned the salon and its equipment. Moreover, the court found that because the salon paid 100% of the policy’s premiums, the plan did not qualify for ERISA’s safe-harbor exemption. As the court determined that the policy falls under ERISA, it then turned to whether the state law claim related to the plan, or whether it could be considered a state insurance regulating law exempted from preemption under ERISA’s savings clause. Mr. Edwards maintains that Mississippi common law prohibits cancelling an insurance policy after an insured becomes uninsurable from a fatal or terminal illness. The court found that this common law was really a breach of an insurance contract claim, and while the law has a bearing on insurers, it is not a law specifically directed towards the insurance industry and therefore not covered under the savings clause. Thus, the court held that the law-regulating-insurance exception did not apply here, and the contract claim was therefore preempted. The court therefore dismissed the state law claim with prejudice. Accordingly, Mr. Edwards was left with only his ERISA benefits claim.

Pleading Issues & Procedure

Seventh Circuit

Bledsoe v. Continental Cas. Co., No. 22-cv-02170, 2023 WL 5018000 (N.D. Ill. Aug. 7, 2023) (Judge Sharon Johnson Coleman). Pro se plaintiff Letra Bledsoe sued her former employer, Continental Casualty Co., and its HR representative, Elizabeth Aquinaga, under Title VII of the Civil Rights Act, ERISA, and for libel. In her three-page complaint, Ms. Bledsoe argues that Continental Casualty violated ERISA by failing to permit a lump sum payment of her pension benefits. She also claimed that defendants discriminated against her and that she faced harassment in the workplace. Defendants moved to dismiss for failure to state a claim. The court granted the motion to dismiss without prejudice. The court found the complaint failed to allege that the ERISA plan allows for lump sum payments, and therefore concluded that Ms. Bledsoe failed to plausibly state a claim that she is entitled to any such payment. It similarly concluded that the complaint was deficient in its allegations of Title VII discrimination, and that Ms. Bledsoe gave no indication she exhausted her administrative remedies by filing a claim with the EEOC after the alleged violation occurred. Finally, the court dismissed the state law libel claim for lack of subject matter jurisdiction.

Provider Claims

Third Circuit

Univ. Spine Ctr. v. Cigna Health & Life Ins. Co., No. 22-02051 (SDW) (LDW), 2023 WL 5125443 (D.N.J. Aug. 10, 2023) (Judge Susan D. Wigenton). Plaintiff University Spine Center provided treatment to a patient insured under an ERISA health benefit plan administered and insured by Cigna Health & Life Insurance Company. After it was assigned benefits from the patient, the provider submitted a claim for reimbursement to Cigna. Cigna issued a payment, but not for the nearly $400,000 for which the provider sought reimbursement. Instead, it paid just over $8,000. Disputing this calculation, University Spine sued Cigna under ERISA Section 502(a)(1)(B) seeking reimbursement. Cigna moved for dismissal pursuant to the plan’s anti-assignment provision. The court granted the motion to dismiss for lack of derivative standing on February 21, 2023. University Spine moved to alter or amend that judgment and also moved for leave to amend its complaint. It argued that it received a valid power of attorney (“POA”) from the patient, and that it can therefore bring an ERISA claim on behalf of the patient for reimbursement of the medical costs. The court did not agree. “Plaintiff seeks to use the POA to circumvent the anti-assignment provision for the apparent benefit of Plaintiff, rather than to serve as an attorney-in-fact to benefit the Patient. Such a scheme constitutes improper use of a POA in this context.” Consequently, the court found that plaintiff’s motion to alter or amend its judgment presented insufficient grounds to cure its fatal jurisdictional deficiency and therefore denied the motion. It also found that because the provider cannot establish standing, any further amendment to the complaint would be futile. Thus, the court also denied the motion for leave to amend.

Venue

Fourth Circuit

Kovach v. LHC Grp., No. 3:23-0051, 2023 WL 5002457 (S.D.W. Va. Aug. 4, 2023) (Judge Robert C. Chambers). Two former employees of LHC Group, Inc. who are participants in the company’s 401(k) plan have sued LHC, the plan’s committee, and the individual committee members for breaches of their fiduciary duties under ERISA. Plaintiffs alleged that defendants mismanaged the plan by failing to monitor its fees and investments. Defendants moved to transfer venue from the Southern District of West Virginia to the Western District of Louisiana. The court ultimately granted the motion to transfer, concluding that the action could have been filed in Louisiana and the balance of factors strongly favored transfer. In particular, the court focused on the fact that the plan is administered in Lafayette, Louisiana, that all administrative decision-making occurred there, and all of the defendants are located in the state. These facts, the court determined, meant that the case has a greater connection to the Western District of Louisiana than it does to the Southern District of West Virginia, where the plaintiffs worked, lived, and contributed to the plan. Thus, the court determined that “nearly all discovery related to the Committee members’ decisions and actions regarding the alleged mismanagement and breaches of fiduciary duties occurred within the Western District of Louisiana.” Additionally, the court noted that plaintiffs’ participation in the ligation will most likely be less than defendants’ involvement will be. Therefore, the court gave greater consideration to the defendants’ forum non conveniens argument. “Under these circumstances, the Court has no difficulty finding the inefficiencies of litigating this matter in the Southern District of West Virginia are overwhelmingly evident and the considerations of convenience, fairness, and interest of justice strongly favor transferring this action to the Western District of Louisiana.” Thus, the court granted defendants’ motion and ordered the case to be transferred.

Tenth Circuit

Shani N. v. Gillette Childrens Specialty Healthcare Med. Benefit Plan, No. 4:22-cv-00070-RJS-PK, 2023 WL 5046818 (D. Utah Aug. 8, 2023) (Judge Robert J. Shelby). Mother and daughter plaintiffs Shani N. and J.G. sued their self-funded ERISA welfare plan, the Gillette Children’s Specialty Healthcare Medical Benefit Plan, after J.G.’s claims for stays at two out-of-network residential treatment programs in Utah and Arizona were denied. One of the residential treatment centers was found by the plan to be a wilderness therapy program expressly excluded from coverage under its language. J.G.’s treatment at the other facility was approved up until she turned 18, at which point the plan ceased paying for treatment as its terms only provide for such care for minors. Seeking payment of benefits and challenging the plan’s limitations for mental healthcare, plaintiffs sued the plan for violating ERISA Section 502(a)(1)(B), and also intend to state a claim under Section 502(a)(3). Defendant moved to dismiss the complaint for lack of personal jurisdiction, improper venue, and failure to state a claim. In the alternative, defendant moved to transfer venue from Utah to Minnesota. Plaintiffs opposed. The court began its discussion with defendant’s challenge to personal jurisdiction and improper venue. It found that the plan failed to meet its burden to demonstrate that litigating in Utah violates the principles of due process and therefore denied the motion to dismiss on either basis. Having concluded that venue is proper in Utah, the court proceeded to analyze whether Minnesota would be a more convenient forum and, as a result, whether the interests of justice would be served by transferring. The court answered in the affirmative. Because all parties are located in Minnesota, the court dockets are less congested in Minnesota, and all relevant events occurred in Minnesota aside from J.G.’s treatment, the court held that transferring was in the best interest of justice. Thus, it granted the motion to transfer. Last, the court denied without prejudice defendant’s motion to dismiss pursuant to Rule 12(b)(6). The court decided not to resolve the substantive issues raised in the motion to dismiss for failure to state a claim. Instead, the court prompted the plan to refile the motion before the court in Minnesota.

Bugielski v. AT&T Servs., Inc., No. 21-56196, __ F.4th __, 2023 WL 4986499 (9th Cir. Aug. 4, 2023) (Before Circuit Judges Paez and Bade and District Judge Raner C. Collins)

Section 406(a) of ERISA prohibits benefit plan fiduciaries from entering into certain transactions with “parties in interest.” Prohibited transactions include the sale of property, lending of money, transfer of interest in plan assets, and any “furnishing of goods, services, or facilities.” Parties in interest include any plan fiduciary, the employer, employees, and any third-party service providers. Because the statute is so broadly written, plan fiduciaries and beneficiaries often battle over how far it reaches, and this case is yet another example.

The plaintiffs were Robert Bugielski and Chad Simecek, former AT&T employees who contributed to AT&T’s retirement plan. Recordkeeping duties were performed by Fidelity Workplace Services. The plaintiffs filed a class action lawsuit against AT&T centered around the services performed by Fidelity.

Fidelity had been the plan’s recordkeeper since 2005, but in 2012, AT&T amended its contract with Fidelity to provide plan participants with access to Fidelity’s brokerage account platform, called BrokerageLink. Fidelity charged fees to participants for investing with BrokerageLink, and also received “revenue-sharing fees” from the mutual funds in which participants invested using BrokerageLink. Fidelity earned millions of dollars through this revenue sharing.

Following this, in 2014, AT&T contracted with Financial Engines Advisors, LLC to provide optional investment advisory services to plan participants. In order to advise participants, Financial Engines needed access to participant accounts, which it obtained when AT&T amended its contract with Fidelity to provide Financial Engines with the access it needed. Financial Engines and Fidelity also entered into a separate contract through which Fidelity received a portion of the fees Financial Engines earned from managing participant investments. Again, this was highly lucrative for Fidelity, which received millions of dollars through this agreement.

The plaintiffs criticized these arrangements and contended that AT&T violated ERISA in three ways. First, they argued that AT&T’s failure to consider Fidelity’s compensation rendered its contract with Fidelity a prohibited transaction under ERISA. Second, they contended that AT&T breached its duty of prudence to plan participants by failing to consider this compensation. Third, plaintiffs argued that AT&T failed to disclose this compensation in its annual Form 5500 report to the Department of Labor.

The district court granted summary judgment to AT&T on all counts, and the plaintiffs appealed.

The Ninth Circuit first tackled the prohibited transaction claim. The court quickly found that AT&T’s contract amendment with Fidelity was a prohibited transaction under ERISA’s “plain and unambiguous statutory text.” Fidelity was clearly a “party in interest” because it “provided services to the plan,” and the amendment constituted a “furnishing of services” between AT&T and Fidelity.

AT&T contended that ERISA’s prohibited transactions provision was not intended to include “arm’s-length service transactions,” but the Ninth Circuit was unmoved. The court emphasized that the statute was broadly written, and thus must be broadly interpreted. The statute “contains no language limiting its application to non-arm’s-length transactions, and accepting AT&T’s ‘statutory intent’ argument would undermine the scheme Congress enacted.”

The court further noted that its interpretation was supported by the Department of Labor, which had issued an advisory opinion involving “remarkably similar” facts. The Department had observed that arrangements like the one in this case “could lead to potential conflicts of interest” and thus constituted prohibited transactions.

Undeterred, AT&T cited three cases which supported its theory that arm’s-length transactions should not be included in ERISA’s definition of prohibited transactions: Lockheed Corp. v. Spink, 517 U.S. 882 (1996), Sweda v. University of Penn., 923 F.3d 320 (3d Cir. 2019), and Albert v. Oshkosh Corp., 47 F.4th 570 (7th Cir. 2022). (Your ERISA Watch discussed the latter two rulings in its May 5, 2019 and September 7, 2022 issues.)

The court found that Lockheed was inapposite, partly because it was not even clear that the arrangement in that case was a “transaction” in the first place, and furthermore, it did not “have the potential to be harmful,” whereas here the fees involved “could ‘significantly reduce’ participants’ assets.” As for Sweda and Albert, the Ninth Circuit found them “unpersuasive” and “disagreed with [their] analysis” because they did “not follow the statutory text.” The Ninth Circuit noted that neither case considered the Department of Labor’s thoughts on the issue, which strongly supported the court’s conclusion that the transactions at issue were statutorily prohibited.

Thus, the Ninth Circuit squarely ruled that the transactions at issue were prohibited. However, this was not the end of the story. Even if a transaction is prohibited, ERISA allows for an exemption if (1) the contract or arrangement is “reasonable,” (2) the services are “necessary for the establishment or operation of the plan,” and (3) no more than “reasonable compensation is paid” for the services.

The Ninth Circuit bypassed the first two requirements and focused on the third. AT&T argued that “reasonable compensation” only referred to what Fidelity received directly from the plan and its participants, while the plaintiffs contended that “reasonable compensation” included the compensation Fidelity received from Financial Engines and BrokerageLink.

The Ninth Circuit again agreed with the plaintiffs, and in doing so again relied on the Department of Labor, which had stated in its amendment of regulations that “responsible plan fiduciaries have a duty to consider compensation that will be received by a [party in interest] from all sources in connection with the services it provides to a covered plan pursuant to the [party in interest’s] contract or arrangement.”

The court particularly noted the Department’s concern regarding “third-party fees.” The Department observed that these fees involved “special risks” because they can “create conflicts of interest between service providers and their clients.” The Department also noted that these payments have “been largely hidden from view,” thereby preventing fiduciaries “from assessing the reasonableness of the costs for plan services.”

Because the district court did not consider the compensation Fidelity received from Financial Engines and BrokerageLink in evaluating whether “reasonable compensation” was paid for its services, the Ninth Circuit remanded for the district court to engage in that analysis in the first instance.

For the same reasons, the Ninth Circuit reversed the district court’s ruling in AT&T’s favor on plaintiffs’ second claim for violation of the duty of prudence. The court noted that fiduciaries such as AT&T “must have information about the compensation – direct and indirect – received by service providers like Fidelity ‘to satisfy their fiduciary obligations under ERISA[.]’” However, a fiduciary cannot satisfy these obligations “if he or she is unaware of how and to what extent a service provider is compensated.”

This left only one claim, plaintiffs’ argument that AT&T incorrectly reported Fidelity’s compensation to the Department of Labor in its Form 5500. The Ninth Circuit upheld the district court’s ruling that AT&T correctly reported Fidelity’s compensation from BrokerageLink. However, it reversed as to Financial Engines, holding that its fees were not “eligible indirect compensation,” and thus should have been reported.

As a result, the Ninth Circuit reversed and remanded for further evaluation by the district court. The court’s unvarnished criticism of the Third Circuit’s decision in Sweda and the Seventh Circuit’s decision in Albert is noteworthy, and thus Your ERISA Watch will be keeping a close eye on this case to see if it receives en banc review or perhaps even the attention of the Supreme Court.

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

Arbitration

Second Circuit

The Trs. of the N.Y. State Nurses Ass’n Pension Plan v. Hakkak, No. 22-cv-5672 (ER), 2023 WL 4967071 (S.D.N.Y. Aug. 2, 2023) (Judge Edgardo Ramos). The relationship between the Trustees of the New York State Nurses Association Pension Plan and the private equity firm, White Oak, began in 2013. After pitching their funds to the plan, defendants Andre Hakkak and Barbara McKee, the co-founders of the firm, were able to convince the Trustees to enter into an Investment Management Agreement with White Oak. They did so on December 31, 2013. The Agreement included an arbitration clause with broad language requiring any dispute arising from the agreement be resolved by arbitration. Without the input of the Trustees, White Oak executed a Limited Partnership Agreement (“LPA”), which included “irrevocably committing the investments to White Oak since the LPAs ‘locked up’ the Funds.” In 2015, the Investment Management Agreement was set to expire. “Around the same time, unknown to the Trustees, Defendants courted the Plan’s chief investment officer…to join White Oak.” Operating under that conflict of interest, the investment manager of the plan recommended to the Trustees that they renew the agreement for another two years. Based on that advice, the Trustees signed a new Investment Management Agreement with White Oak, and this renewed agreement contained the same broad arbitration provision as the original agreement. One month after the new agreement was signed, White Oak hired the plan’s chief investment officer as their new Vice Chairman. The Trustees, now aware of the relationship between their own investment manager and White Oak, tasked the plan’s new chief investment officer with closely inspecting White Oak. What he found became the basis of a 2017 arbitration proceeding between the parties, wherein the Trustees alleged that White Oak breached its fiduciary duties by never returning money owed to the plan, unilaterally “locking-up” the funds in the LPAs, charging the plan retroactive fees, and committing the plan to indemnify it against losses and claims caused by its conduct. The arbitrator found that White Oak had violated ERISA by engaging in numerous prohibited transactions. The arbitrator removed White Oak as the plan’s investment manager, ordered disgorgement of profits, and awarded fees and costs to the Trustees. That arbitration award was then confirmed in court. Defendants however “continue to hold the Plan’s money, and the Trustees claim that Defendants engaged and are engaging in prohibited transactions contrary to their fiduciary duties.” Thus, the Trustees brought this ERISA action against the co-founders. Defendants then filed a motion to compel arbitration as non-parties to the Investment Management Agreement on the basis of equitable estoppel because of their close relationship with White Oak and as the Trustees’ claims fall under the broad language of the arbitration clause. In this order the court agreed with defendants and granted their motion to compel arbitration. It stated that the defendants may equitably estop the Trustees as they are sufficiently intertwined with White Oak and the claims fall under the agreement. Moreover, the court found that unmistakable evidence existed that the parties intended to submit the threshold question of arbitrability to the arbitrator, because the arbitration clause invokes the American Arbitration Association and its rules. Accordingly, the court ordered a stay of the case until the arbitrator decides this threshold issue.

Tenth Circuit

Harrison v. Envision Mgmt. Holding Inc., No. 21-cv-00304-CNS-MDB, 2023 WL 4945841 (D. Colo. Aug. 3, 2023) (Magistrate Judge Maritza Dominguez Braswell). In early 2021, plaintiff Robert Harrison filed this class action involving an ERISA-governed ESOP, the Envision Management Holding, Inc. Employee Stock Ownership Plan. Defendants – the selling shareholders, Argent Trust Company, the company’s board of directors, and the plan’s committee – moved to compel arbitration. That motion was denied. The court found the arbitration provision invalid because it disallowed plan-wide relief “expressly contemplated by ERISA.” Defendants appealed to the the Tenth Circuit and moved to stay the order while the appeal was pending. The motion to stay was granted. The Tenth Circuit Court of Appeals then affirmed the order denying the motion to compel arbitration. A summary of that decision was Your ERISA Watch’s case of the week in our February 15, 2023 newsletter. Defendants filed a petition for rehearing, which the Tenth Circuit denied. Jurisdiction then returned to the district court. Defendants subsequently filed a petition to the U.S. Supreme Court and argued in the district court in favor of keeping the stay pending resolution of their petition. The court “decided to lift the stay, but stage discovery to account for the…petition to the Supreme Court.” In response, defendants renewed their motion to stay pending appeal in light of an intervening Supreme Court decision in Coinbase, Inc. v. Bielski, 143 S. Ct. 1915 (2023). Defendants argued that the Coinbase decision requires an automatic stay until resolution of appeals, including petitions to the Supreme Court, in cases involving disputes over arbitration. Mr. Harrison disagreed with this reading of the decision and instead argued that Coinbase decided a narrow issue, resolving a circuit split over whether the statutory right to appeal under 9 U.S.C. § 16(a) comes with an automatic stay while an appeal is pending in the court of appeals. He maintained that the automatic stay does not extend through resolution of a petition in the Supreme Court. In this decision, the court agreed with plaintiff. “Nowhere in Coinbase does the majority discuss the application of this automatic stay beyond the court of appeals process.” Not only did the court conclude that Coinbase does not require an automatic stay, but it also declined to reinstate the stay. Doing so, the court found, would prejudice plaintiff as a continued delay could make it harder to litigate the claims. Based on the foregoing, the court denied defendants’ motion, and ordered the discovery process to continue pursuant to the court’s staggered discovery schedule.

Breach of Fiduciary Duty

Fourth Circuit

McDonald v. Laboratory Corp. of Am., No. 1:22CV680, 2023 WL 4850693 (M.D.N.C. Jul. 28, 2023) (Judge Loretta C. Biggs). In this putative class action, plan participant Damian McDonald seeks to represent a class of the participants and beneficiaries of the LabCorp 401(k) Plan “to protect the retirement savings” of those invested in the plan. Mr. McDonald alleges that the Laboratory Corporation of America (“LabCorp”) breached its fiduciary duty of prudence in violation of ERISA. He specifically alleges that LabCorp acted imprudently by allowing the plan to pay excessive recordkeeping fees and by causing the plan to invest in high-cost retail share classes of mutual funds when lower-cost institutional share classes were available to the plan. LabCorp moved to dismiss the complaint for failure to state a claim. In this order the court granted in small part, but mostly denied, the motion to dismiss. The court concluded that plaintiff adequately stated his claim based on excessive recordkeeping fees. Because the complaint alleged that the plan paid over $43 per participant during the class period “when it could have paid $25 or less per participant” and included comparator plans with similar services, the court found the allegations sufficient to withstand a motion to dismiss. LabCorp’s arguments to the contrary were unpersuasive to the court, which considered them inappropriate as they would have required viewing the allegations in a less favorable light to the non-moving party by interpreting and scrutinizing the data provided. Accordingly, the court found that Mr. McDonald identified sufficient benchmarks against which to compare LabCorp’s plan and adequately alleged that the company failed to track how much it was paying for recordkeeping services or to solicit competing bids for cheaper services. Thus, the court allowed the fee claim to continue. However, with regard to the share class claim, the court held that LabCorp made “a meritorious objection to one of Plaintiff’s fourteen proposed high-cost-to-low-cost substitutions. The issue is that the challenged allegedly high-cost fund is a mutual fund, and the proposed lower-cost alternative is a collective investment trust.” The court agreed with LabCorp that mutual funds and collective investment trusts are too dissimilar to compare based solely on price. Thus, the court dismissed this one share class. Nevertheless, the court held that Mr. McDonald stated an imprudence claim based on the remaining thirteen challenged funds.

Sixth Circuit

Patterson v. United Healthcare Ins. Co., No. 22-3167, __ F. 4th __, 2023 WL 4882436 (6th Cir. Aug. 1, 2023) (Before Circuit Judges Siler, Nalbandian, and Readler). Plaintiff-appellant Eric Patterson was injured in a car accident involving a tractor trailer. His medical expenses were covered under his ERISA-governed healthcare plan and paid by United Healthcare Insurance Company. Mr. Patterson later sued the other driver in state court for his injuries. In the lawsuit, Mr. Patterson joined his ERISA plan to obtain a declaratory judgment that it had no right to reimbursement of any potential recovery. During discovery, United maintained that no plan document beyond the summary plan description existed, and that the summary plan description included a right to reimbursement. That lawsuit ended with Mr. Patterson recovering a settlement from the other driver’s employer, and Mr. Patterson agreeing to pay United $25,000 as reimbursement for the medical expenses. But as luck would have it, the story did not end there. In a strange twist of fate, a couple of months later, Mr. Patterson’s wife was unfortunately hurt in a second traffic accident. United once again paid the medical bills, and once again informed the family that it would seek reimbursement from any potential recovery from the other driver. Ms. Patterson did sue the other driver, and again sought a declaratory judgment in state court that United had no reimbursement right. “After initially denying the existence of a plan document, as they did in the first state court case, the plan’s attorneys produced one. The tendered plan document stated that it took precedence over the summary plan document in the event of a discrepancy between the two. And while the summary plan document included a reimbursement right, the plan document did not.” The second state court action ended with the court awarding judgment in favor of Ms. Patterson, including on her declaratory judgment claim against the plan. Having discovered that he was never obligated to reimburse United under the governing document, Mr. Patterson took to the courts once again, filing this action under ERISA against the United entities and the plan’s attorneys, seeking the return of his $25,000. Mr. Patterson also sought to represent a class of similarly situated participants and beneficiaries, believing that what happened to him and his wife was part of a larger practice by defendants of swindling reimbursements out of third-party recoveries. Defendants moved to dismiss, and Mr. Patterson moved to amend his complaint. The district court dismissed the complaint. It found that Mr. Patterson did not have standing to represent a class. As to his individual claim for the return of the money he paid as reimbursement, the district court found that Mr. Patterson had not stated a viable claim under ERISA. Finally, based on futility grounds, the district court denied Mr. Patterson’s motion for leave to amend. This appeal to the Sixth Circuit followed, and in this decision the court of appeals reversed in part and affirmed in part. The decision began by addressing the threshold issue of standing. The Sixth Circuit agreed with the lower court that Mr. Patterson has standing to sue for return of his $25,000 settlement payment, but that he did not plausibly allege any future injury entitling him to prospective injunctive relief. Additionally, the court of appeals agreed that Mr. Patterson does not have standing to pursue class claims because he could not point to any other insured with a similar story to his and his wife’s where United sought an improper reimbursement from a third-party recovery. Thus, the appeals court found that he failed to state facts to show a plausible injury to other participants and beneficiaries. It also concluded that Mr. Patterson had failed to claim that defendants’ actions caused harm to the plan itself in any way, including in the form of inadequate funding. Accordingly, the court of appeals affirmed the district court’s standing conclusions and agreed that Mr. Patterson’s only injury-in-fact was the $25,000 he lost when he settled and paid reimbursement to defendants under false pretenses. Next, the Sixth Circuit addressed defendants’ arguments related to the Rooker-Feldman doctrine. Defendants argued that “this lawsuit is an impermissible attempt to end-run the unsuccessful declaratory judgment claim Patterson brought against United and the plan in state court.” The Sixth Circuit disagreed. Instead, it concluded that Mr. Patterson had properly brought a suit challenging defendants’ actions before and during litigation which he believes were a breach of fiduciary duties they owe him under the plan and ERISA. “Accordingly, this case falls comfortably outside Rooker-Feldman’s purview.” With these threshold matters addressed, the Sixth Circuit proceeded to the merits, and analyzed whether Mr. Patterson could state valid claims for breach of fiduciary duty and prohibited transaction against defendants based on their actions claiming rights to recover reimbursement when they had none. The appeals court began with Mr. Patterson’s equitable relief claims pursuant to Section 502(a)(3). Not only did the court find that the breach of fiduciary duty claim had an equitable basis, but it also found the prohibited transaction claim did too, as the facts underlying both claims are identical and United therefore allegedly used the plan assets for its own purposes violating both duties. “Because both theories Patterson puts forth rest on an equitable basis, they may proceed.” Further, the Sixth Circuit found that disgorgement of the $25,000 and equitable restitution were both forms of equitable relief that may be pursued through Section 502(a)(3). It also held that Mr. Patterson adequately pleaded the tracing requirement to state a disgorgement claim. The Sixth Circuit then evaluated whether Mr. Patterson could sue for relief under ERISA Section 1109. It concluded that he could not because he did not plausibly allege harm to the plan. As for the attorney defendants, the court of appeals held that Mr. Patterson could not state a viable claim under Section 502(a)(3) against them as they were only “implicated through implausible contentions that they participated in a large-scale scheme.” Finally, the Sixth Circuit expressed that it found no error in the district court’s denial of leave to amend the complaint to pursue the putative class claims. As stated earlier, the Sixth Circuit found flaws in Mr. Patterson’s class-based theories and therefore agreed with the district court that a class action here is not viable and amendment therefore is futile. In sum, the court of appeals found that Mr. Patterson had colorable claims for breach of fiduciary duty and prohibited transactions against the United defendants, and therefore reversed this aspect of the lower court’s dismissal. In all other respects, the remainder of the district court’s decision was affirmed.

England v. DENSO Int’l Am., No. 22-11129, 2023 WL 4851878 (E.D. Mich. Jul. 28, 2023) (Judge Mark A. Goldsmith). Participants of the DENSO International America, Inc. 401(k) Plan have sued the plan’s fiduciaries in this putative class action for breaches of their duties of prudence and monitoring. Plaintiffs allege that defendants allowed the plan to pay excessive amounts of recordkeeping and management fees, that the plan retained a higher cost share class for one of the funds offered in the plan, and that defendants selected and retained an underperforming stable value fund in the plan. Defendants moved to dismiss plaintiffs’ complaint for failure to state a claim. The court agreed with defendants that plaintiffs failed to allege sufficient facts from which it could plausibly infer that defendants breached their duties “based on the circumstances that existed at the time defendants acted.” This was especially true for plaintiffs’ claims premised on the underperforming fund. Below-average performance in and of itself, the court found, does not a plausible ERISA violation make. Moreover, the court was not convinced by the allegations in the complaint that defendants paid excessive fees relative to the services received. It found plaintiffs’ blanket assertion that the plan’s recordkeeper “did not provide any services at any higher level that were not also part of the standard package of RKA services provided by all recordkeepers to mega plans” to be conclusory and insufficient to state a plausible claim. For all of plaintiffs’ fee based claims, the court held that they had not provided sufficient benchmarks with which to measure the reasonableness of the costs incurred. Finally, the court rejected plaintiffs’ novel “net expense ratio theory.” Plaintiffs argued that the plan should have offered a retail share class rather than an institutional share class because the particulars of the two funds meant that the retail share class had a greater revenue sharing credit which would have offset the higher cost of the share class, making the net expense actually less than that of the institutional share class the plan invested in. The court stated that these facts did not necessarily indicate imprudence and that plaintiffs therefore failed to state a claim centered on this theory. Thus, the court granted the motion to dismiss.

Class Actions

Ninth Circuit

Hendricks v. Aetna Life Ins. Co., No. CV 19-06840-CJC (MRWx), 2023 WL 4853418 (C.D. Cal. Jul. 25, 2023) (Judge Cormac J. Carney). Plaintiffs Brian Hendricks and Andrew Sagalongos brought this class action against Aetna Life Insurance Company to challenge its uniform policy of denying coverage for Lumbar Artificial Disc Replacement (“Lumbar ADR”) surgery as “experimental or investigational.” On June 11, 2021, the court certified a class of all persons covered by ERISA-governed plans insured by Aetna whose requests for Lumbar ADR were denied on experimental or investigational grounds, and whose denials are subject to abuse of discretion review. A summary of that decision was Your ERISA Watch’s case of the week in our June 23, 2021 newsletter. Before the court here was a motion filed by Aetna to decertify the class in light of the Ninth Circuit’s decision in Wit v. United Behavioral Health, 58 F.4th 1080 (9th Cir. 2023). In this order the court denied the motion. The court reached its decision by distinguishing the facts from Wit. In particular, the court agreed with plaintiffs that “commonality under Rule 23(a)(2), as well as the requirements under Rule 23(b)(1)(A) through (b)(2), remain satisfied notwithstanding Wit’s holdings on the ‘reprocessing’ remedy.” When the court previously found the commonality requirement satisfied, it concluded that this action raised a common question of whether the surgery “has been proven safe and effective for treating degenerative disc disease. If the answer is yes, then Aetna cannot deny requests for Lumbar ADR on the ground that it is experimental or investigational.” To the court, “nothing in Wit…undermines this conclusion.” Furthermore, the court held that the class members do not need to demonstrate entitlement to a positive benefits determination in order to succeed on their claim for breach of fiduciary duty. Moreover, because Aetna’s denials were systematic and made on a common basis, the court stated that it could determine whether Aetna abused its discretion in denying coverage “[i]n one fell swoop.” In addition, the court also held that although “Wit clarified that when exhaustion is required as a matter of contract, the rules governing prudential exhaustion have no place,” this clarification does not disturb the well-settled contract principle of repudiation. In this instance, the court held that Aetna’s denials of coverage for the surgery were systematic and automatic “regardless of whether Plaintiffs exhausted their appeals.” Thus, the court once again found that plaintiffs were typical of the class regardless of their failure to exhaust administrative appeals. Finally, the court held that although Aetna has revised its policy on Lumbar ADR, plaintiffs’ requests for an injunction are not moot. “Nothing prevents Aetna from returning to its old ways, so the injunction is still viable notwithstanding Aetna’s change of heart,” the court wrote. For these reasons, the court was unwilling to decertify the class even in light of the Ninth Circuit’s holding in Wit, and it therefore denied Aetna’s motion.

Eleventh Circuit

Goodman v. Columbus Reg’l Healthcare Sys., No. 4:21-CV-15 (CDL), 2023 WL 4935004 (M.D. Ga. Aug. 2, 2023) (Judge Clay D. Land). Participants of Columbus Regional Healthcare System, Inc.’s defined contribution plan filed this putative class action alleging that Columbus Regional breached its fiduciary duties under ERISA by failing to monitor the plan’s investment options and expenses. Plaintiffs amended their complaint to add a prohibited transaction claim under Section 406 of ERISA. Two motions were before the court here. First, Columbus Regional moved to dismiss the new prohibited transaction claim. Second, plaintiffs moved to certify their class under Federal Rule of Civil Procedure 23(b)(1). In this order, the court denied the partial motion to dismiss, and granted the motion to certify. Regarding the motion to dismiss, the court was satisfied that at this pleading stage plaintiffs adequately alleged that the agreements with the service providers constituted prohibited transactions under ERISA, and that they therefore stated their claim. Turning to the motion to certify, the court was convinced the class of participants and beneficiaries of the plan met the requirements of Rule 23(a) and (b)(1). Even Columbus Regional acknowledged “that ERISA actions alleging breach of fiduciary duty are routinely certified under Rule 23(b)(1),” because prosecuting separate actions would run the risk of creating inconsistent adjudications or establishing incompatible standards of conduct for the plan. Columbus Regional also did not dispute that the class was numerous or that representation was adequate. Instead, it challenged plaintiffs’ standing, commonality, and typicality. The court found that plaintiffs had standing to assert their class-wide claims, as “the named Plaintiffs assert that their accounts were negatively affected by each of the three types of alleged fiduciary duty breaches by Columbus Regional.” The court also found that there are common issues of law and fact for plaintiffs’ investment, fee, and prohibited transaction claims. Moreover, the court stated that plaintiffs’ allegations sufficiently imply that Columbus Regional employed flawed practices which were common across the plan and affected all participants. Thus, the court was convinced that plaintiffs’ claims were capable of class-wide resolution, and found plaintiffs met their burden of establishing that their proposed class should be certified.

ERISA Preemption

Second Circuit

Park Ave. Podiatric Care v. Cigna Health & Life Ins. Co., No. 22 Civ. 10312 (AKH), 2023 WL 4866045 (S.D.N.Y. Jul. 31, 2023) (Judge Alvin K. Hellerstein). An out-of-network podiatric center, Park Avenue Podiatric Care, P.L.L.C., sued Cigna Health and Life Insurance Company challenging a payment of benefits for care it provided to a patient covered under an ERISA plan insured by Cigna. Park Avenue Podiatric brought state law claims for breach of oral contract, unjust enrichment, promissory estoppel, and a violation of New York’s Prompt Pay Law. On March 13, 2023, the court dismissed the complaint as preempted by ERISA. Park Avenue Podiatric moved for reconsideration. The court denied the motion. It stated that plaintiff had not identified any change in controlling law or facts nor clear error in the original order. Reiterating its prior position, the court maintained that Cigna’s coverage determinations could not be evaluated without consulting and analyzing the language of the ERISA plan, meaning the state law causes of action are preempted. As it had done before, the court rejected Park Avenue Podiatric’s argument that the conversations it had with Cigna created an oral contract and independent legal duty unrelated to the terms of the plan. Consequently, the court viewed the motion for reconsideration as a simple disagreement with its previous conclusions and reading of the complaint. Accordingly, the court’s view that “Cigna’s commitment to pay is inextricable from the terms of the Plan,” remained unaltered and plaintiff’s motion was denied.

Medical Benefit Claims

Seventh Circuit

Hatch v. Wolters Kluwer United States, Inc., No. 20 C 7168, 2023 WL 4930286 (N.D. Ill. Aug. 1, 2023) (Judge Matthew F. Kennelly). A mother and daughter who are a participant and beneficiary of the mother’s employer-provided health plan, the Wolters Kluwer United States, Inc. Health Plan, brought suit against the plan and its administrator seeking judicial review of the plan’s denials of coverage for residential treatment the daughter received for mental health issues during a two-year period from 2018 to 2020. The parties cross-moved for summary judgment. Having evaluated the 9,000-page administrative record, the parties’ briefing, and the denials, the court was left with the opinion that defendants’ “disregard of the relevant evidence,” their “near-verbatim repetition” of findings throughout the many denial letters, those letters’ “use of boilerplate language,” and defendants’ “selective view of the medical evidence,” were all “classic arbitrary and capricious behavior.” Accordingly, the court granted judgment in favor of plaintiffs and denied defendants’ motion for summary judgment. The court also found that plaintiffs’ suit was not time-barred as defendants never informed plaintiffs of the plan’s contractual limitations period, an action which the court found violated the Department of Labor’s regulations. Additionally, the court determined that even if defendants were right that plaintiffs had failed to exhaust administrative remedies for the daughter’s treatment at one of the residential facilities, such a failure would be excusable here because the plaintiffs had a lack of meaningful access to the review procedures. Regarding remedies, the court awarded benefits in part and reversed and remanded in part. The court directed reinstatement of the benefits for the claims where it found “the record indicates that the plaintiff’s condition has either remained constant or worsened,” from the time when benefits were paid to when they were arbitrarily terminated. It reversed and remanded the benefit determinations that it viewed as based on inadequate findings or explanations, but where the record did not definitively show that the benefits were medically necessary. Finally, the court directed plaintiffs to submit briefing on the amount of monetary recovery, interest, attorney’s fees, and costs. Overall, this decision, with its language unequivocally finding the denials arbitrary and capricious, was a significant victory for the plaintiffs.

Tenth Circuit

L.D. v. UnitedHealthcare Ins., No. 1:21-cv-00121-RJS-DBP, 2023 WL 4847421 (D. Utah Jul. 28, 2023) (Judge Robert J. Shelby). Plaintiff L.D., on behalf of her minor daughter, K.D., sued her ERISA-governed welfare plan, The Insperity Group Health Plan, and its plan administrator, UnitedHealthcare Insurance, after the plan stopped paying for her daughter’s stay at a residential treatment center. L.D. brought a claim for recovery of benefits pursuant to Section 502(a)(1)(B), as well as a claim for violation of the Mental Health Parity and Addiction Equity Act. The parties filed competing motions for summary judgment. In this decision the court granted both motions in part and denied both motions in part. First, because the appropriate review standard here was de novo, the court stated that it would not consider defendants’ procedural shortcomings and whether their inconsistencies in the denial letters or even the “cursory nature” of the letters denied plaintiff a full and fair review. Instead, the court evaluated whether a preponderance of the evidence supported a finding that K.D.’s continued stay at the residential treatment center was medically necessary as defined by the plan. The court found that K.D.’s mental health and behavioral problems had not stabilized, and that treatment therefore was medically necessary from February 11 to March 15, 2019, and ordered defendants to pay for K.D.’s treatment at the residential treatment center for these dates. However, from March 16 to August 6, 2019, the court found that the evidence established that K.D. had improved enough to uphold defendants’ denial during this period. Utilizing Optum’s level of care guidelines, the court agreed with defendants that K.D. no longer qualified for benefits during this time period as she exhibited no episodes of violence towards herself or others. “K.D.’s ongoing behavioral problems may indicate she needed additional treatment. But they do not demonstrate by a preponderance of the evidence that K.D. needed 24-hour care. K.D. had no self-harm for almost five months and successfully participated in off-campus activities, demonstrating K.D.’s symptoms had stabilized, and she no longer required 24-hour care.” Finally, the court concluded that remand was appropriate to determine the claim from August 7, 2019, to November 4, 2019, agreeing with plaintiff that the record was not developed enough for this time frame because the denial rationales only applied to the claims before August 7, 2019. Thus, the court remanded to defendants to provide a specific rationale for why coverage was denied beyond August 6. The court then turned to plaintiff’s Parity Act claim. Ultimately, the court determined that the plan’s medical necessity limitation applicable to mental health benefits was not more restrictive than the limitation it applied to coverage for skilled nursing facilities or impatient rehabilitation facilities. Although the guidelines for the two were not identical, the court was satisfied they were comparable and that one was not more restrictive or applied in a more restrictive way than the other. Accordingly, defendants were granted judgment on the Parity Act claim. Last, the court allowed plaintiff to submit briefing on prejudgment interest, attorney’s fees, and costs on the portion of the denial of benefits claim for which she was successful.

Pleading Issues & Procedure

Second Circuit

Sacerdote v. N.Y. Univ., No. 16 Civ. 6284 (AT) (VF), 2023 WL 4894909 (S.D.N.Y. Aug. 1, 2023) (Judge Analisa Torres). This action began in 2016, when participants and beneficiaries on behalf of two ERISA-governed New York University retirement plans sued NYU to challenge its management of the plans. Plaintiffs brought fiduciary breach claims related the plan’s fees and share classes. NYU moved to dismiss the action, and on August 25, 2017, the court granted in part the motion to dismiss. Plaintiffs responded by moving for leave to amend their complaint to add the individual Retirement Plan Committee members as defendants and to replead the dismissed claims. Their motion was denied. The case then proceeded to an eight-day bench trial held in the spring of 2018, and that summer, the court issued a written decision finding in favor of NYU on all remaining claims. Plaintiffs moved for amended or additional trial findings under Federal Rule of Civil Procedure 52(b) and to alter or amend the judgment under Rule 59(e). The court denied the post-trial motions. Plaintiffs then appealed the final entry of judgment and the denial of their post-trial motions to the Second Circuit Court of Appeals. On appeal, the Second Circuit found that the court erred in denying leave to amend by applying the wrong legal standard to plaintiff’s 2017 motion. This error, the court wrote, was not “harmless because the resulting denial of leave to amend may have affected plaintiffs’ post-trial motions.” Moreover, the appeals court found that had plaintiffs been allowed to add the individual committee members as defendants “the district court would have had to enter judgements specific to each of them after trial, finding whether each had breached her fiduciary duty as an individual member of the Committee.” The Second Circuit accordingly vacated the denial of leave to amend and remanded plaintiffs’ motion for consideration under the correct legal standard. The Second Circuit also vacated the denial of plaintiffs’ Rule 52(b) and 59(e) post-trial motions. When the case was back before the district court, Magistrate Judge Valerie Figueredo granted plaintiffs’ motion for leave to file a second amended complaint. In that order the Magistrate concluded that naming the individual committee members as defendants would not be futile and was in line with the Second Circuit’s rulings. NYU filed objections and moved to vacate the Magistrate’s order. In this decision, the court overruled the objections and denied the request to vacate. “Instead of identifying errors in the Order, NYU speculates about Plaintiffs’ intentions in this action,” the court said. It held that Magistrate Figueredo’s conclusions were grounded in the text of the Second Circuit’s decision, and after careful review of the order and the Second Circuit decision, the court expressed that it was not “left with the definite and firm conviction that a mistake has been committed.” Mostly, the court viewed NYU’s objections as reiterated arguments already presented to Judge Figueredo. Having found no clear error in the order, the court denied NYU’s motion and directed plaintiffs to file their amended complaint.

Fourth Circuit

Falwell v. Liberty Univ., No. 6:23-cv-11, 2023 WL 4867432 (W.D. Va. Jul. 31, 2023) (Judge Robert S. Ballou). Son of famous televangelist Jerry Falwell, Jerry Falwell, Jr., brings this ERISA action seeking payment of Supplemental Executive Retirement (“SERP”) benefits from his former employer, defendant Liberty University, Inc. following his resignation from Liberty which he alleges was “without cause” and for “good reason” as defined by the plan. Since accepting Mr. Falwell’s resignation in August of 2020, circumstances between the employer and its former employee have soured. One year later, in 2021, Liberty filed suit against Mr. Falwell in state court for claims arising out of alleged actions Mr. Falwell took both during and after his employment. Liberty asserts claims of breach of contract, breach of employment contract, breach of fiduciary duty, conspiracy, and unjust enrichment. “Particularly relevant to this case, Liberty alleges that Falwell breached his fiduciary duty to Liberty by negotiating the ‘walkaway’ severance and [SERP] benefits in 2019 and 2020 while withholding pertinent information from Liberty.” By the time Mr. Falwell submitted his claim for SERP benefits in 2022, the state court action was already underway and his claim for benefits was denied because the committee stated that it could not properly construe the terms of the plan or Mr. Falwell’s eligibility for benefits while the state court action was pending. After a final denial was issued, Mr. Falwell commenced this federal action against Liberty and the Executive Committee of the Board of Trustees of the university seeking payment of his benefits under Section 502(a)(1)(B). Liberty responded by requesting the court apply the Colorado River abstention doctrine and either dismiss or stay this action pending the Virginia state court proceeding. The Colorado River doctrine allows a court to exercise its discretion to stay or dismiss a federal suit “in exceptional and limited circumstances where there is a substantially similar suit pending in state court.” Here, the court did not find that such circumstances existed and therefore denied defendant’s motion. Although Liberty asserted that abstention was warranted because rescission of the ERISA plan is a remedy it is seeking in state court and in direct conflict with Mr. Falwell’s request for an order of payment of benefits by the court in this action, the court found this argument “insufficient to warrant abstention.” Overall, it agreed with Mr. Falwell that the factors used to assess the appropriateness of abstention were not met and the state and federal actions were “not sufficiently similar to constitute parallel proceedings.” Moreover, the court stated that resolution of the state court action “will not necessarily resolve the claims in this federal ERISA case.” In perhaps the most interesting section of the decision the court found fault with Liberty’s “unabashed” attempt “to use the state court discovery process to conduct fact-finding outside the administrative record in an effort to unwind the [SERP] contract and avoid paying benefits under an ERISA plan. Liberty’s request that this court abstain to allow it to engage in discovery in state court conflicts with the clear congressional intent of the ERISA statute to permit the nationally uniform administration of employee benefit plans through the federal courts.” The court stressed that this use of a state court proceeding’s discovery process is not the proper use of Colorado River abstention and is moreover antithetical to ERISA’s claims handling procedures. For these reasons, the court declined to exercise its discretion to stay proceedings or dismiss the action.

Provider Claims

Second Circuit

Karkare v. Meritain Health, No. 22-CV-3697 (FB) (AYS), 2023 WL 4904754 (E.D.N.Y. Aug. 1, 2023) (Judge Frederic Block). Surgeon Nakul Karkare sued Meritain Health under ERISA as an attorney-in-fact on behalf of a patient on whom he performed surgery at a hospital. Dr. Karkare seeks payment of benefits for the surgery for which the patient is otherwise responsible. Meritain Health moved to dismiss the action, which the court granted in this order. The court stated that in the Second Circuit a power of attorney is insufficient for a provider to bring a suit on behalf of a patient under ERISA. As Dr. Karkare did not allege that he was assigned benefits, the court found that he lacked derivative standing to sue for benefits, and because he lacked statutory standing under ERISA, the court dismissed the complaint with prejudice.

Withdrawal Liability & Unpaid Contributions

Eighth Circuit

Greater St. Louis Constr. Laborers Welfare Fund v. B.F.W. Contracting, LLC, No. 22-2138, __ F. 4th __, 2023 WL 4940260 (8th Cir. Aug. 3, 2023) (Before Circuit Judges Smith, Stras, and Kobes). Two labor unions, four employee benefit funds, and the trustees of those funds sued construction companies B.F.W. Contracting, LLC and B.F.W. Contractors, LLC to compel an audit and recover unpaid contributions pursuant to a collective bargaining agreement. The district court found that the contractors were bound by the collective bargaining agreement, that they could not unilaterally terminate the agreement, and that they had violated its terms. It granted summary judgment in favor of plaintiffs and found they had incurred $30,368.22 in damages for the unreported covered work. “This sum included fringe benefit contributions, supplemental dues, liquidated damages, and interest.” Additionally, the district court awarded plaintiffs $4,792 to cover the cost of the audit, $11,015 in attorneys’ fees, and $2,393.54 in court costs. The contractors appealed to the Eighth Circuit. They advanced several arguments, but the court of appeals did not consider most of them because it found a genuine issue of material fact that made the award of summary judgment inappropriate – “whether the Contractors had a duty to pay supplemental dues under the [collective bargaining agreement].” Under the terms of the agreement, supplemental dues are only deducted from employees’ wages at “such time as the Employer has physically in his possession an authorization card signed by the employee providing for such deduction and payment to the respective Local Unions.” The Eighth Circuit concluded that pursuant to this clear language the Board was required to provide evidence that the authorization cards were actually supplied to the contractors in order to show that they breached the collective bargaining agreement and had a duty to pay the supplemental dues. Furthermore, the court of appeals found that the contractors had raised this issue below and therefore had not forfeited the argument. Thus, as this fact issue remains, the Eighth Circuit reversed the summary judgment order and remanded to the district court for further proceedings.

Kairys v. S. Pines Trucking, Inc., No. 22-1783, __ F. 4th __, 2023 WL 4718509 (3d Cir. Jul. 25, 2023) (Before Circuit Judges Hardiman, Porter, and Fisher).

This week’s case of the week is a rare bird: an ERISA Section 510 trial ending in a favorable decision for the plan participant. Plaintiff Thomas J. Kairys sued his former employer, Southern Pines Trucking, Inc. challenging the company’s decision to fire him four months after he took time off work to undergo a costly surgery. Believing his termination discriminatory and retaliatory, Mr. Kairys sued Southern Pines alleging violations of the Americans with Disabilities Act (“ADA”), the Age Discrimination in Employment Act (“ADEA”), ERISA Section 510, and also asserting state-law claims for breach of contract, violation of Pennsylvania’s Wage Payment and Collection Law, and discrimination under Pennsylvania Human Relations Act (“PHRA”).

A jury trial was held in the case simultaneously with a bench trial on the ERISA retaliation claim. The jury returned a verdict finding that Southern Pines had not violated ADA, ADEA, and PHRA, but that Southern Pines had violated the state wage law. In addition, the jury also returned an advisory verdict on Mr. Kairys’ ERISA Section 510 claim, finding that Mr. Kairys’ failed to prove by a preponderance of the evidence that the company’s decision to fire him was motivated by retaliation for his use of costly healthcare benefits from the self-funded ERISA welfare benefit plan, or by an intent to interfere with his rights to use future healthcare benefits for potential upcoming surgeries.

The district court, however, did not adopt this advisory view. Instead, it independently considered the evidence, evaluated the ERISA claim, and determined that Southern Pines had retaliated against Mr. Kairys for using his ERISA-protected healthcare benefits and interfered with his right to future protected benefits. The district court awarded Mr. Kairys $67,500 in front pay and $111,981.79 in attorneys’ fees and costs under ERISA Section 502(g).

Southern Pines appealed the court’s judgment on the ERISA claim (and resulting fee award), and the Third Circuit affirmed.

Although the Third Circuit noted that advisory jury verdicts are generally not binding on a trial court, the district court was required to “accept[ ] the jury’s findings on common facts.”  Nevertheless, the court of appeals held that the district court’s judgment on the ERISA claim “was neither inconsistent with the jury’s verdict on his other claims, nor unsupported by the trial evidence.” Although the “jury made no specific findings of fact,” the court of appeals reasoned that “ADA, ADEA, PHRA, and ERISA claims have distinct elements of proof,” and the jury’s finding that Mr. Kairys’ disability and his age were not a determining factor in his termination, did not necessarily mean that his exercise of ERISA benefits “also must not have been a determinative factor.”

Turning to the merits, the appeals court was satisfied that there was sufficient evidence to support the district court’s verdict on the ERISA claim and that its conclusions with respect to this claim were not clearly erroneous. As an initial matter, the court disagreed with Mr. Kairys that Southern Pine had waived this issue, noting that the company raised the same issues with the sufficiency of the evidence in the district court as it raised on appeal.  Nevertheless, the Third Circuit was satisfied that the evidence in the record could be construed to support a finding that Southern Pines’ decision to terminate Mr. Kairys’ employment was motivated by a discriminatory, rather than a legitimate, reason.

In this regard, the Third Circuit noted that the district court credited Mr. Kairys’ testimony that he was told by his supervisor to “lay low” after his surgery over the contrary testimony of that supervisor and another manager. Moreover, the company’s assertion that it had simply eliminated Mr. Kairys’ position was undermined by the fact that it soon “borrowed” a replacement employee from a sister company. Furthermore, there was evidence that supported that the company was aware of the costs of Mr. Kairys’ surgery and indeed had highlighted the invoices for the surgery and terminated him after reviewing the health insurance records and considering the financial impact of the surgery.

Finally, the Third Circuit held that the lower court had not abused its discretion in calculating a reasonable award of attorneys’ fees and costs. It viewed the district court’s 25% reduction in fees, to account for the claims on which Kairys did not prevail, to be reasonable. Moreover, the Third Circuit found no error in Kairys’ counsel’s time entries.

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

Arbitration

Ninth Circuit

Platt v. Sodexo, No. 8:22-CV-02211-DOC-ADS, 2023 WL 4832660 (C.D. Cal. Jul. 25, 2023) (Judge David O. Carter). Plaintiff Robert Platt is an employee of defendant Sodexo, Inc. and a participant in its medical plan. He brings this action against his employer on behalf of himself and all similarly situated plan participants and beneficiaries for violation of ERISA in connection with the plan’s yearly nicotine surcharge. Mr. Platt argues in his complaint that the nicotine surcharge violates ERISA because there is no alternative to the surcharge, like a smoking cessation program, offered to plan participants. Moreover, Mr. Platt maintains that Sodexo is required to give participants notice of a reasonable alternative standard, which the company is also failing to do. Mr. Platt contends that Sodexo is breaching its fiduciary duties to participants by discriminating against participants based on a health-status related factor and that the collection of the surcharges is contrary to the terms of the plan itself. Sodexo moved to compel arbitration of Mr. Platt’s claims, arguing that the arbitration provision it included to the plan in 2021 covers Mr. Platt’s claims. Mr. Platt opposed the arbitration motion. He argued that the provision lacked mutual assent, as it was buried on page 153 of a 170-page summary plan description that was sent to participants as a hyperlink in an email which did not mention arbitration or in any way put recipients on notice that they would be relinquishing their rights to sue or subject to binding arbitration. Mr. Platt never clicked on the hyperlink to the summary plan description, let alone signed the document, checked a box, clicked a button, or took any action to manifest his knowledge of the provision or his agreement to its terms. In this decision the court denied the motion to compel arbitration, agreeing with Mr. Platt that he had not accepted the agreement to arbitrate. It held that employers “may not unilaterally modify an ERISA plan to include arbitration provisions.” Without conspicuous notice, the court wrote, “it is difficult to see how Plaintiff could have agreed to the provision, be it by silence or by continued participation in the plan. While there is a presumption in favor of arbitration, such a presumption does not override the principle that a court may submit to arbitration ‘only those disputes…the parties have agreed to submit,’…nor that courts may use policy considerations as a substitute for party agreement.” Therefore, the court found no agreement to arbitrate and denied defendant’s motion. Because the court denied the motion to compel arbitration on this ground, it did not reach other issues including those regarding the scope of the provision or its class action waiver.

Attorneys’ Fees

Tenth Circuit

Theo M. v. Beacon Health Options, Inc., No. 2:19-cv-00364-JNP-DBP, 2023 WL 4826771 (D. Utah Jul. 27, 2023) (Judge Jill N. Parrish). Plaintiffs Theo M. and M.M. brought this ERISA mental healthcare action seeking payment from their ERISA-governed mental health and substance abuse plan for reimbursement of medical costs incurred by the family from treatment M.M. received at two residential treatment centers. Parties cross-moved for summary judgment and the court entered judgment in favor of plaintiffs, concluding that defendant Beacon Health Options, Inc.’s denial of benefits was arbitrary and capricious as it failed to explain its reasons for denying the claims despite having “several opportunities to provide Plaintiffs with a coherent reason for denying their claims,” and because it disregarded the opinions of the treating physicians. Given what the court called these “egregious” violations of ERISA’s procedural requirements, the court concluded that reversal of the denials and remanding to Beacon Health for reconsideration was the proper course of action. Now plaintiffs have moved for an award of attorney’s fees and costs pursuant to ERISA Section 502(g)(1). The court granted their motion and ordered defendants pay plaintiffs $51,460 in fees and $400 in costs. Specifically, the court found the fee award appropriate given defendants’ “culpability for failing to properly assess Plaintiffs’ claims,” their abuse of discretion, and the fact that a fee award “would encourage (defendants) to follow ERISA’s regulations and requirements.” The court was also satisfied plaintiffs met the threshold requirement of “success on the merits,” and were thus eligible for a fee award. However, when it came to the amounts of the awards, the court did reduce the requested $63,800 plaintiffs sought in attorney fees. The court agreed with defendants that attorney Brian King’s hourly rate of $600 per hour was excessive and reduced the rate to $500 per hour. Attorneys Brent Newton and Samuel Hall’s hourly rates of $320 and $250 per hour respectively were not altered by the court. Additionally, the court reduced Mr. King’s hours from 87.5 hours down to 80.2 hours, reflecting a reduction in the hours billed preparing the fee motion. The court once again did not disturb the hours of the attorneys Newton and Hall who worked 15.5 hours and 25.6 hours on the case. After these alterations the court was left with its ultimate fee award of $51,460, and declined to reduce this amount as defendants requested to reflect what they viewed as  plaintiffs’ “limited success.” Finally, the court awarded plaintiffs their requested $400 in costs, “attributable to the filing fee.”

Breach of Fiduciary Duty

Tenth Circuit

Teodosio v. Davita, Inc., No. 22-cv-0712-WJM-MDB, 2023 WL 4761621 (D. Colo. Jul. 26, 2023) (Judge William J. Martinez). In this fee case, former employees of DaVita, Inc. and participants of its defined contribution retirement savings plan have brought a putative class action against the plan’s fiduciaries for breaches of their duties of prudence and monitoring in connection with the plan’s administrative management and recordkeeping fees. Plaintiffs allege that these fees were unreasonably high when compared to those associated with similar plan investment options and recordkeepers, and that defendants failed to engage in a prudent process, including by leveraging the bargaining power of their large plan, to select funds and recordkeeping services with lower costs. Defendants moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Their motion was granted in part and denied in part in this order. Scrutinizing plaintiff’s complaint, the court agreed with defendants that plaintiffs had a problem with standing. None of the four named plaintiffs personally invested in any of the challenged funds. Adopting, what it “determined to be the majority position of courts that have considered this issue,” the court held “that for Plaintiffs to have standing to sue on behalf of absent putative class members, they do not need to have invested in each of the allegedly imprudent funds; however, they must have elected to invest in at least one such fund, and the absent putative class members’ injuries must be ‘rooted in Defendants’ conduct in managing all the funds as a group.’” Since plaintiffs did not meet this threshold qualification, the court concluded that they lacked standing to bring their fiduciary breach claim premised on their management fee theory. The court therefore dismissed this portion of their allegations, however it did so without prejudice. Turning to the recordkeeping fee claims, the court found that plaintiffs have suffered a particularized injury-in-fact and that the court thus has subject-matter jurisdiction over these claims. The court then evaluated whether plaintiffs had stated their recordkeeping fee claims under Rule 8 pleading standards and concluded that they had. While the court stated that defendants’ arguments about insufficient comparators were “generally well-taken,” it also held that the “fact-intensive” nature of these arguments make them inappropriate at this stage of the litigation. Accordingly, the 12(b)(6) motion to dismiss the recordkeeping fee imprudence and monitoring claims was denied.

Disability Benefit Claims

Third Circuit

Avery v. Sedgwick Claims Mgmt. Servs., No. 22-1960, __ F. App’x __, 2023 WL 4703865 (6th Cir. Jul. 24, 2023) (Before Circuit Judges McKeague, Griffin, and Murphy). For two years following an accident in which she fractured her ankle, Plaintiff Jacqueline Avery received long-term disability benefits for “advance peripheral deyelinatibe and axonal polyneuropathy [of the] lower legs,” under the plan sponsored by her employer, Chrysler Group LLC. The third-party claims administrator for the Plan, Sedgwick Claims Management Services, then terminated those benefits and Ms. Avery sued for the reinstatement of those benefits. The district court granted judgment in favor of Sedgwick on the administrative record and the Sixth Circuit affirmed on appeal, despite an extensive challenge by Ms. Avery both with respect to numerous perceived procedural deficiencies and with respect to the merits of the decision. With respect to the procedural challenges, the court concluded that Sedgwick substantially complied with ERISA’s statutory and regulatory requirements with respect to notice of the basis for the denial and an opportunity to appeal, did not deny Ms. Avery an opportunity to supplement the administrative record in support of her claim, did not violate the claims regulation by having a non-specialist examine her because two board-certified neurologists then conducted record reviews of the medical evidence, and did not omit any relevant documents from the administrative record. ON the merits, the court concluded that Sedwick’s decision was not arbitrary and capricious, a standard that the Sixth Circuit referred to as “extremely deferential” and “the least demanding form of judicial review.” Applying this standard, the court determined that “Sedgwick engaged in a deliberate, principled reasoning process when it decided to terminate Avery’s long-term disability benefit,” and that the record “contained more than adequate evidence for Sedgwick to conclude that Avery was no longer totally disabled under the terms of the Plan,” supported by “no fewer than four physicians [who] concluded that Avery is no longer totally disabled.”      

Discovery

Fourth Circuit

Taekman v. Unum Life Ins. Co. of Am., No. 1:22cv605, 2023 WL 4763724 (M.D.N.C. Jul. 26, 2023) (Magistrate Judge L. Patrick Auld). Plaintiff Dr. Jeffrey Taekman, MD, a board certified anesthesiologist who has leukemia, brought this ERISA action seeking to recover long-term disability benefits under an ERISA-governed disability plan insured and administered by defendant Unum Life Insurance Company of America. After an unsuccessful mediation, Dr. Taekman served interrogatories, requests for admission, and requests for production of documents on Unum. Unum responded to Dr. Taekman’s discovery requests, answering some and objecting to most others. Stuck in a discovery dispute, the parties sought resolution in the court. Unum moved for an expansive protective order limiting the court’s review to what Unum views as the complete administrative record and prohibiting parties to engage in written discovery, depositions, and all further production of documents. Dr. Taekman took issue with Unum’s protective order request and its broad assertion that no exceptional circumstances, difficult medical questions, conflicts of interest, or issues regarding the credibility of medical experts are at play here, as well as Unum’s belief that the administrative record is complete. Dr. Taekman not only opposed Unum’s protective order motion, but also moved to compel further discovery. Unum additionally moved to seal “Exhibit C,” which it considered to be the complete administrative record in the case. Dr. Taekman did not object to filing Exhibit C under seal. The court addressed each of these motions in this decision. First, with regard to the protective order sought by Unum, the court agreed with Dr. Taekman that Unum “has not established good cause” to justify such relief. Not only did the court hold that Unum’s discovery responses fell short in many respects, but it also concluded that its general assertions about discovery and the lack of specifics to the particulars of this litigation, meant that Unum failed to demonstrate that closing off further discovery entirely is appropriate here. Accordingly, the court denied Unum’s requested protective order. Nevertheless, the court also found that Dr. Taekman did not satisfy the perquisites for compelled production of further discovery including its conferral obligations. Because of this, the court denied, without prejudice Dr. Taekman’s discovery motion. Dr. Taekman was instructed by the court to file any renewed discovery motion in a more careful and considered manner, and to “clearly address why permitting such discovery, including any requested deposition, qualifies as proportional given the ‘significant restraints on the district court’s ability to allow evidence beyond what was presented to the administrator’ and the need to ‘provide prompt resolution of ERISA claims.’” Finally, the motion to seal was granted. The court found sealing Exhibit C justifiable given the good cause of protecting private medical information.

Eighth Circuit

Hardy v. UNUM Life Ins. Co. of Am., No. 23-cv-563 (JRT/JFD), 2023 WL 4841952 (D. Minn. Jul. 28, 2023) (Magistrate Judge John F. Docherty). Plaintiff Mark W. Hardy, an attorney who became disabled in 2016 from a tumor, sued Unum Life Insurance Company of America after his long-term disability benefits were terminated in late 2020. Mr. Hardy has moved to conduct discovery beyond the administrative record and additionally moved to compel Unum to produce privilege log documents based on the fiduciary exception to attorney-client privilege. The court in this order denied the discovery motion and granted the motion to compel the production of the privilege log documents. To begin, the court stressed the general presumption against extra-record discovery in ERISA disability benefits, particularly those, as here, where the denial will be reviewed under de novo review standard. Mr. Hardy suggested that the administrative record Unum produced was not complete, and that its decision to terminate his benefits “was tainted by bias or bad faith.” With regard to the completeness of the record, the court held that Mr. Hardy failed “to allege or show that any medical evidence or records are missing from the administrative record provided by Unum.” Regarding Unum’s intent while processing Mr. Hardy’s claim, the court stated that such information is irrelevant when analyzing the administrative record de novo. Accordingly, the court held that Mr. Hardy did not satisfy the good cause standard to conduct additional discovery, as it has everything it will need to review the denial on the record as is. However, concerning the motion to compel the privilege log, the court agreed with Mr. Hardy that he was entitled to these documents based on the fiduciary exception to attorney-client privilege. The court expressed that it was unpersuaded by Unum’s position that there was an adversarial relationship between the parties prior to litigation and therefore held that the liability exception-to-the-exception did not apply here.

Medical Benefit Claims

Third Circuit

Univ. Spine Ctr. v. Edward Don & Co., No. 22-3389, 2023 WL 4841885  (D.N.J. Jul. 28, 2023) (Judge John Michael Vazquez). Plaintiff University Spine Center, acting as attorney-in-fact to an insured patient, has sued Edward Don & Company, LLC and Cigna Health and Life Insurance seeking unpaid medical benefits. The healthcare provider’s original complaint was dismissed for failure to state a claim pursuant to Rule 12(b)(6). University Spine Center filed a second amended complaint, and defendants once again moved for dismissal. In this order the court granted the renewed motion to dismiss. Once again, the court held that plaintiff failed to allege that Cigna inaccurately calculated and paid benefits given Cigna’s discretionary authority to interpret the plan’s reimbursement language and its ability to “override” a conflict between two billing codes. Instead, the court found that plaintiff had merely asserted in the complaint that it “disagrees with Cigna’s determinations.” Because the court concluded that University Spine Center had not plausibility alleged that defendants acted in contravention to the terms of the plan, the court found that it had not demonstrated that it was entitled to the relief it sought. The court’s dismissal, however, was without prejudice, and the medical center was given 30 days to file another amended complaint should it choose to do so.

Pension Benefit Claims

Second Circuit

Aracich v. The Bd. of Trs. of the Emp. Benefit Funds of Heat & Frost Insulators Local 12, No. 22-2544, __ F. App’x __, 2023 WL 4692316 (2d Cir. Jul. 24, 2023) (Before Circuit Judges Kearse, Jacobs, and Menashi). In early 2021, plaintiff-appellant Matthew Aracich’s employer, the Building and Construction Trades Council of Nassau & Suffolk Counties, AFL-CIO, terminated its agreement with the International Association of Heat and Frost Insulators Local No. 12 union and ceased making contributions to its pension and welfare plans. At this time, Mr. Aracich announced that he would be retiring from Local Union No. 12, although he remained in his position working for the Trades Council.  Under the terms of the two ERISA plans, Mr. Aracich considered himself retired given that he was no longer employed by a covered employer, and so he applied for early retirement benefits under the plans. The Trustees of the plans denied Mr. Aracich’s benefit claims, interpreting the plan language as requiring him to cease working altogether in order to have “retired” and therefore be eligible for benefits. After unsuccessfully appealing the denial, Mr. Aracich sued the Board of Trustees in a five count ERISA complaint, bringing claims for benefits, retaliation, anti-cutback, breach of fiduciary duty, and breach of contract. The Trustees moved to dismiss the complaint for failure to state a claim. The district court granted their motion and dismissed the action on September 20, 2022. A summary of that decision can be found in Your ERISA Watch’s September 28, 2022 edition. Mr. Aracich appealed the dismissal in the Second Circuit. In this unpublished decision, the Second Circuit affirmed the lower court’s holdings. First, the court of appeals concluded that the Trustees appropriately exercised their discretionary authority in interpreting the ambiguous definition of “retire,” including the term “contributing employer,” under the plans and that their interpretation “was neither ‘without reason’ nor ‘erroneous as a matter of law.’” Accordingly, the Second Circuit held that the Trustees had not violated ERISA in denying the benefit claims. Next, the court of appeals agreed with the district court that Mr. Aracich failed to state a claim under Section 510 because he suffered no adverse employment action and his allegations of disparate treatment compared to similarly situated employees who retired before him were found to be “conclusory.” Additionally, the Second Circuit disagreed with Mr. Aracich that the Trustees’ new interpretation of the term “retire” – to require cessation of all employment – was in direct conflict to the plans’ language which contemplate separation from covered employment, or that this re-interpretation could be considered a plan amendment for the purposes of ERISA’s anti-cutback rule. The Second Circuit wrote that Mr. Aracich “remains entitled to his pension, which he can collect when he retires.” Regarding Mr. Aracich’s breach of contract claim, the appeals court found it duplicative of his claims for benefits. Finally, the appellate court concluded that Mr. Aracich had not stated a claim for breach of fiduciary duty, and that his arguments to the contrary were without merit. For the forgoing reasons, the Second Circuit affirmed the dismissal.

Third Circuit

Luciano v. Teachers Ins. & Annuity Ass’n of Am., No. 15-6726 (RK) (DEA), 2023 WL 4760578 (D.N.J. Jul. 26, 2023) (Judge Robert Kirsch). Plaintiff Lorraine H. Luciano is the surviving spouse of a former employee of defendant Educational Testing Service (“ETS”). After her husband died, Ms. Luciano filed a claim with defendants Teachers Insurance and Annuity Association of America and the College Retirement Equities Fund seeking to recover 100% of her deceased husband’s Qualified Preretirement Survivor Annuity (“QPSA”) under ETS’s 401(a) Plan and its 403(b) Match Plan. Defendants paid Ms. Luciano only 50% of the QPSA benefit. Ms. Luciano then commenced this lawsuit, on behalf of a putative class, challenging the 50% QPSA determination under the plans. The court compelled arbitration as to the 401(a) Plan and stayed the 403(b) claims pending resolution of the arbitration. Ms. Luciano was successful during arbitration, and on April 30, 2020, the arbitrator held that the terms of the 401(a) Plan unambiguously required payment to Ms. Luciano of a “benefit based upon the full Account Balance value of (decedent’s) account,” and issued an award to that effect. Thereafter, Ms. Luciano moved to confirm the arbitration award and reopen the case. Defendants opposed her motion, and also requested permission to renew a motion for equitable reformation of the plans. The court then granted plaintiff’s motions, fully confirming the award entered by the arbitrator and reopening the remainder of the case. The court also granted defendants’ request to renew their motion for equitable reformation. Defendants subsequently moved to amend the ETS 401(a) Plan, to correct a scrivener’s error that occurred in 2002, which they say they discovered during this action, and which they argued resulted in the 401(a) plan accidently eliminating the 50% QPSA benefit.  In this decision the court granted the motion to reform based on Third Circuit precedent which allows “the scrivener’s error doctrine (to) be invoked to modify ERISA plans under certain limited circumstances.” As a preliminary matter, the court rejected Ms. Luciano’s argument that defendants’ motion was untimely under New Jersey’s six-year statute of limitations for reformation of contract claims, as well as her argument that defendants waived their ability to argue for equitable reformation. The court held that defendants’ motion was timely as they did not have actual knowledge of the error until 2014 at the earliest, the date when Ms. Luciano first sent defendants a letter contesting the 50% benefit amount. With regard to waiver, the court did not agree with Ms. Luciano that defendants were required to raise the argument during either the administrative proceedings or during arbitration. With these challenges overruled, the court turned the merits of defendants’ motion. It held that the evidence clearly and convincingly showed that the 2002 amendment never intended to provide for a 100% QPSA benefit, especially as all Plan documents both before and after the 2002 restatement of the plan “consistently presented a 50% QPSA benefit.” Furthermore, the court stated that it appeared no participant or beneficiary ever saw the Plan language containing the error. “Rather, it appears that all participants construed the benefits through communications which consistently provided for a 50% QPSA benefit. Accordingly, allowing reformation of the scrivener’s error would not thwart ERISA’s statutory purpose of ensuring that plan participants can rely on their expected entitlement.” Thus, the court was satisfied that defendants met their burden of showing that the 2002 drafting error was unintentional and therefore allowed them to equitably reform the Plan “to more clearly reflect an intent to provide a 50% QPSA benefit.” However, the court was careful to specify that this decision will not disturb the confirmed arbitration award or Ms. Luciano’s 100% QPSA benefit under the 401(a) Plan.

Provider Claims

Fifth Circuit

Windmill Wellness Ranch, L.L.C. v. Blue Cross & Blue Shield of Ala., No. SA-19-CV-1211-OLG (HJB), 2023 WL 4842453 (W.D. Tex. Jul. 28, 2023) (Magistrate Judge Henry J. Bemporad). An out-of-network mental health and substance use treatment center in Texas, plaintiff Windmill Wellness Ranch, LLC, has sued a series of Blue Cross and Blue Shield entities under ERISA Section 502(a)(1)(B) and state law seeking to recover payment of numerous medical claims for treatment it provided to insureds and beneficiaries from 2017 – 2019. Defendants moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(2), 12(b)(3) and 12(b)(6), based on numerous grounds including lack of standing, lack of personal jurisdiction, failure to exhaust administrative remedies, and failure to state a claim. Magistrate Judge Bemporad issued this report and recommendation recommending the court grant in part and deny in part the motions to dismiss. First, with regard to standing, because the patients have been added as plaintiffs to the case, Magistrate Bemporad stated that “either Patients or Windmill have standing to assert he claims. Accordingly, Defendants’ motions to dismiss for lack of standing should be denied.” As for personal jurisdiction, the Magistrate found that ERISA provides for nationwide personal jurisdiction over the defendants. Things were different with respect to the breach of contract claim though. The report highlighted the complaint’s failure to identify which Blue Cross defendants contracted with Windmill. Due to this lack of information the court will not be able to determine whether personal jurisdiction exists for each of the defendants regarding the breach of contract claim. Thus, the report recommended the court grant the motion to dismiss for lack of personal jurisdiction over the state law claims, but to do so without prejudice allowing Windmill leave to amend and cure this deficiency. The report then moved to the issue of exhaustion. Magistrate Bemporad wrote that “because exhaustion of administrative remedies is an affirmative defense and not a jurisdictional bar,” the topic is not properly addressed at the motion to dismiss stage and should instead be raised during summary judgment. Therefore, the report recommended the court deny the motions to dismiss for failure to exhaust. Finally, the Magistrate Judge held that plaintiffs stated their claims as they identified language from the plan documents in their possession and allege a good faith effort to obtain those not in their possession. Furthermore, the provider and patients allege sufficient facts to infer that defendants breached the contracts and violated the reimbursement language of the plans. As a result, viewing the allegations in the light most favorable to plaintiffs, the report expressed that it was satisfied the complaint sufficiently states claims for relief to survive a 12(b)(6) challenge.

Seventh Circuit

John Muir Health v. Health Care Serv. Corp., No. 22-cv-6963, 2023 WL 4707430 (N.D. Ill. Jul. 24, 2023) (Judge Steven C. Seeger). In 2013, a non-profit healthcare corporation, plaintiff John Muir Health, entered into a contract with non-party Anthem Blue Cross. That contract required plaintiff to treat individuals insured both by Anthem Blue Cross health plans and by non-Anthem Blue Cross health plans “financed, sponsored, and/or administered by members of companies belonging to the national Blue Cross Blue Shield Association.” Defendant Health Care Service Corporation, although a non-signatory to the contract, is a member of the Blue Cross Blue Shield Association. John Muir alleges that it provided medically necessary treatment to individuals who were participants and beneficiaries of Health Care Service Corp.’s plans and that Health Care Service Corp. authorized those services. Nevertheless, John Muir maintains that it was never paid for the services it provided, leaving it with unpaid bills totaling $177,559.38. Seeking payment, John Muir Health sued Health Care Service Corp. and Blue Cross and Blue Shield of Texas in state court asserting claims of breach of implied-in-fact contract and quantum meruit. Defendants removed the case to the federal court system pursuant to federal question jurisdiction based on ERISA preemption. Defendants then moved to dismiss the action for failure to state a claim. In this order the court denied the motion to dismiss, although it agreed with defendants that the state law claims are completely preempted, at least to the extent they involve beneficiaries of ERISA-governed healthcare plans. To the extent that any of the patients are not insured under ERISA plans, the court stated that it would exercise supplemental jurisdiction over the state law claims. With regard to preemption, the court stated that this was a straightforward benefit payment dispute, and it is clear that John Muir has derivative standing to bring ERISA benefit claims as it has been assigned benefits by the patients. Accordingly, the court held that John Muir may replead its complaint under ERISA, and that dismissal here is inappropriate.

Remedies

Eighth Circuit

Kellum v. Nationwide Ins. Co. of Am., No. 1:20-cv-23-SNLJ, 2023 WL 4824540 (E.D. Mo. Jul. 27, 2023) (Judge Stephen N. Limbaugh, Jr.). In this case involving a subrogation claim to recover medical costs from uninsured motorist coverage proceeds that would have otherwise been payable to the decedent’s family, an ERISA-governed health plan, the Glister-Mary Lee Corporation Group Health Benefit Plan, has been awarded judgment in its favor. Defendant/interpleader plaintiff Nationwide Insurance Company of America filed a motion objecting to the health plan’s proposed judgment, specifically its inclusion of prejudgment interest. Nationwide’s objection to the remedy of prejudgment interest and its position that such relief is not allowed, were rejected by the court in this order. The court wrote, that to the contrary, “ERISA specifically authorizes the Health Plan, as a fiduciary, to obtain all appropriate equitable relief,” and that Eighth Circuit case law going back to the early 1980s makes clear that awards of prejudgment interest are permitted in ERISA actions like this one as a form of make whole relief and that Missouri statutory interest rate applies. Accordingly, the court awarded prejudgment interest at Missouri’s rate of 9% from the date when the claim accrued in 2018, and ordered Nationwide pay the plan $21,750 in prejudgment interest, and then applied a 5.35% post-judgment interest rate to that sum. The decision ended with the court granting the health plan’s motion to dismiss the remaining counterclaims and crossclaims.

Withdrawal Liability & Unpaid Contributions

Fourth Circuit

Int’l Painters & Allied Trades Indus. Pension Fund v. Watters Painting Inc., No. JRR-22-2571, 2023 WL 4759289 (D. Md. Jul. 26, 2023) (Magistrate Judge A. David Copperthite). Multiemployer funds, the International Painters and Allied Trades Pension Plan and the International Painters and Allied Trades Industry Annuity Plan, sued a contributing employer, Watters Painting, Inc., and its owner and executive, Scott Watters, for failure to accurately remit required contributions under a Collective Bargaining Agreement (“CBA”), failure to pay liquidated damages and interest on these delinquent contributions, and failure to produce required records necessary to conduct an audit, as well as a claim for breach of fiduciary duty for misappropriating and diverting plan assets. Plaintiffs moved for default judgment, to which defendants did not timely respond. The matter was assigned to Magistrate Judge Copperthite who issued this report and recommendation recommending the court grant plaintiffs’ motion in its entirety. Magistrate Copperthite held that, accepting the factual allegations in plaintiffs’ complaint as true, plaintiffs sufficiently stated their claims and established liability. Accordingly, he recommended the court enter a default judgment in favor of plaintiffs and against the company and Mr. Watters. As for damages, plaintiffs requested a total amount of $102,884.40, comprised of $66,065.10 in unpaid contributions, $7,977.59 in interest, $14,981.21 in liquidated damages, and $13,860.50 in attorneys’ fees and costs. Each of these amounts was determined by Magistrate Judge Copperthite to be properly calculated pursuant to the terms of the CBA. He thus recommended the court award damages in the full amounts requested. Regarding attorneys’ fees, the court concluded the requested hourly rates ranging from $185 per hour to $325 per hour for each attorney based on their respective years of experience to be appropriate and well within the norms of frequently awarded rates for attorneys in the Pittsburgh, Pennsylvania region. Moreover, Judge Copperthite concluded the 60 hours of total time spent on this action “warranted given the extent and sporadic nature of the delinquent contributions, Defendants’ refusal to comply with mandated audit procedures, and the difficulty of calculating interest and liquidated damages across such a long period of time.” Thus, the requested lodestar was found to be reasonable, and he advised the court to award the full amount of fees requested. Additionally, the requested $437.00 in costs, representing the filing fees and messenger service fees, were also determined fair and to be the type of typical expenses incurred during litigation and thus recoverable. Finally, the Magistrate recommended the court grant plaintiffs’ requested injunctive relief ordering defendants produce documents necessary to complete the audit of its payroll records.

Eighth Circuit

Painters Dist. Council No. 58 v. MJ Interior Finishes & Constr. Mgmt., No. 4:22 CV 405 CDP, 2023 WL 4824564 (E.D. Mo. Jul. 27, 2023) (Judge Catherine D. Perry). The Painters District Council 58 union, its four ERISA employee benefit plans, and the plans’ trustees and fiduciaries sued a company, MJ Interior Finishes and Construction Management LLC, and its owner, Michael Parran, to recover unpaid benefit contributions. Plaintiffs moved for default judgment seeking payment of the delinquent contributions plus liquidated damages, attorneys’ fees and costs. In their motion, plaintiffs sought to recover $15,052.73 comprised of $3,901 in unpaid contributions, $780.20 in liquidated damages, $9,790 in attorneys’ fees, and $581.53 in costs. The court denied the motion for default judgment in this order, without prejudice, concluding that “the evidence submitted within the motion does not support the requested amount of judgment.” Plaintiffs were directed to file a new motion that cures the deficiencies identified by the court in this order. In particular, the court stated that based on its review of the reports, the face value for the unpaid contributions is actually about $100 less – $3,800.65. The order went on to identify other errors in plaintiffs’ calculations, both stemming and not stemming from the underlying flaw of the unpaid contribution arithmetic. Based on these math mistakes the court found that “the affidavits and evidence submitted in the case” do not “support the amount(s)” plaintiffs requested. Thus, the court requested plaintiffs resubmit their motion and take a second crack at their figures.