M.S. v. Premera Blue Cross, No. 22-4056, __ F. 4th __, 2024 WL 4356319 (10th Cir. Oct. 1, 2024) (Before Circuit Judges Hartz, Moritz, and Rossman)
For the second week in a row, Article III standing proves too high a hurdle for ERISA healthcare plan participants, this time a family challenging Premera Blue Cross’ application of guidelines limiting residential treatment under ERISA’s mental health parity provisions. But this decision is not all bad news for plan participants, as the Tenth Circuit also holds for the first time that ERISA’s disclosure and penalty provisions apply to administrative services agreements (but, perhaps even more surprisingly, not to the guidelines themselves). There is a lot here, so Your ERISA Watch will break it down for you.
In 2017, two parents, M.S. and L.S., sought coverage of residential treatment that their child, C.S., received at Daniels Academy to treat C.S.’s autism spectrum disorder, anxiety, and oppositional defiant disorder. Premera, the third-party claims administrator for the plan, denied the claim, concluding both as an initial matter and on appeal that the treatment was not medically necessary under the plan terms because “the ‘intensity of C.S.’s symptoms’ and the ‘intensity of treatment’ at Daniels Academy ‘did not meet the InterQual Criteria for a residential treatment center.’”
During the administrative appeals process, the family requested “‘a copy of all the documents’ Premera used to evaluate C.S.’s claim, including ‘any administrative services agreements’ and ‘any mental health and substance use disorder treatment criteria.’” Plaintiffs also expressly asked for criteria used to evaluate claims at skilled nursing facilities. In response, Premera produced the plan and InterQual Criteria, which it used solely to evaluate mental health treatment claims, but did not produce the administrative services agreements or the skilled nursing facility criteria.
After exhausting their administrative remedies, the family filed suit in the District of Utah against Premera, the plan sponsor, Microsoft, and the plan, making three claims: (1) a claim for benefits under ERISA Section 502(a)(1)(B); (2) a claim for violation of ERISA’s mental health parity provisions on the basis that Premera only applied the InterQual Criteria to mental health claims and, as such, evaluated mental health claims more stringently than claims for medical benefits, and (3) a claim for failure to produce documents under which the plan was established or operated in violation of ERISA Section 502(a)(1)(A), (c). They sought payment of the amount owed to Daniels Academy, appropriate equitable relief, penalties, and attorney’s fees and costs.
The district court granted summary judgment in favor of defendants on the benefits claim, holding that the family failed to establish the medical necessity of the treatment under either the InterQual Criteria or the plan terms.
On the other hand, the district court agreed with the family that, by applying the InterQual Criteria, the defendants applied more restrictive criteria to mental health claims in violation of ERISA’s mental health parity provisions. Nevertheless, the court concluded that plaintiffs were not entitled to any remedy for this violation because they failed to prove there was a threat of continued or repeat injury from this violation that would entitle them to prospective injunctive relief, and they had not proved that they were entitled to coverage of their child’s treatment at Daniels Academy even without application of the challenged criteria.
Finally, the district court granted summary judgment in the family’s favor on their disclosure claim, concluding that they were entitled to both the administrative services agreements, which were never produced, and the skilled nursing criteria, which the defendants did not produce until discovery during the federal suit. The court imposed penalties of $100 a day, totaling $123,100. And based on this success, the district court awarded attorney’s fees totaling $69,240 and costs of $400.
The defendants appealed the merits of the district court’s parity ruling, as well as the court’s disclosure rulings. Importantly, however, the family did not appeal the district court’s adverse ruling on their benefit claim.
The court of appeals began with the parity claim, perceiving a threshold jurisdictional issue in the form of Article III standing. The court noted that the plaintiffs offered two bases on which they asserted an injury in fact stemming from the parity violation: (1) they were denied benefits under the plan; and (2) they were not given notice of how the defendants reviewed their claims. With respect to the first basis, the Tenth Circuit reasoned that because the district court held that Premera would have denied the claim even without application of the InterQual Criteria, and the plaintiffs did not appeal, they “failed to demonstrate that the denial of benefits is ‘fairly traceable to the challenged action of the defendant.’” Thus, the court concluded that the plaintiffs had not shown standing on the basis that they were denied benefits.
Likewise, the court rejected the plaintiffs’ assertion that “a lack of notice of claim review procedures in violation of ERISA is, without more, an injury in fact.” The court reasoned that “Plaintiffs have identified no specific notice requirement allegedly violated by Defendants or otherwise shown prejudice from any such violation.” Because, in the court’s view, the plaintiffs had not shown how they were concretely injured by the defendants’ parity violation, the family could not establish Article III standing with respect to that claim. The Tenth Circuit therefore reversed the district court’s grant of summary judgement on the parity act claim and remanded with instructions for the district court to dismiss that claim.
The plaintiffs fared better on their disclosure claim. Specifically, the Tenth Circuit considered whether the administrative services agreement (“ASA”) between the plan and Premera, and the skilled nursing criteria that Premera applied when considering medical claims, were encompassed within the disclosure requirements of 29 U.S.C. § 1024(b)(4).
With respect to the ASA, the Tenth Circuit held, as a matter of first impression, that the ASA came within the plain terms of § 1024(b)(4) as “a contract, or other instruments under which the plan is established operated.” First, the court had no trouble concluding that the ASA was a contract within the meaning of the statutory provision.
Second, looking to plain dictionary meaning of the terms at the time of ERISA’s enactment, the court concluded that the plan was both established and operated under the ASA, because it set up “the system requiring Plan beneficiaries to submit benefits claims to Premera (rather than Microsoft directly), thus ‘establish[ing]’ the Plan for beneficiaries, and because the “Plan ‘operate[s]’ according to the terms of Premera’s administration, as delegated by Microsoft to Premera in the ASA.” The court noted that the Seventh Circuit had reached the same conclusion in Mondry v. American Fam Mut. Ins. Co., 557 F.3d 751 (7th Cir. 2009). Moreover, the court rejected the defendants’ argument that its conclusion that the plain language of § 1024(b)(4) covers the ASA was in any way inconsistent with ERISA’s purpose to ensure that plan participants are informed about their rights and obligations under the plan, noting that disclosure of the ASA plainly serves this purpose.
The Tenth Circuit reached a different conclusion, however, with respect to the skilled nursing criteria employed by Premera in deciding claims for medical benefits. The court saw this issue as turning on whether these criteria were subject to disclosure under § 1024(b)(4) as “other instruments under which the plan is established operated.” Again, looking to dictionary definitions, the court concluded that the term “instruments” in § 1024(b)(4) means legal documents. Then, invoking “familiar canons of statutory construction,” the court reasoned that the skilled nursing criteria were not legal documents of the type in the preceding list in § 1024(b)(4), which enumerates “‘annual report[s], … terminal report[s], … bargaining agreement[s], trust agreement[s], [and] contract[s]’ as documents an administrator must disclose.” Unlike these legal documents, the skilled nursing criteria “do not establish legal rights or duties but are a set of evaluation criteria Defendants may reference depending on the nature of the benefits claim.”
The Tenth Circuit acknowledged that the district court, in reaching a contrary conclusion, relied on a Department of Labor regulation, 29 C.F.R. § 2590.712(d)(3), which “certainly seems to contemplate disclosure of the Skilled Nursing InterQual Criteria.” But the court of appeals found reliance on the regulation inappropriate because it concluded that § 1024(b)(4) was unambiguous in excluding the criteria. The Tenth Circuit therefore reversed the district court’s ruling with respect to the defendants’ failure to disclosure the skilled nursing criteria.
Nevertheless, the court concluded that it should not disturb the district court’s imposition of $123,100 in penalties given that the court expressly imposed these penalties for the failure to disclose the ASA and declined to impose simultaneous penalties for the failure to disclose the skilled nursing criteria prior to discovery. Likewise, noting that the defendants did not meaningfully oppose the award of attorneys’ fees in the district court, the court of appeals declined to disturb it, discerning no abuse of discretion.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Attorneys’ Fees
D.C. Circuit
Trustees of the IAM Nat’l Pension Fund v. M&K Employee Solutions, LLC, No. 1:20-CV-433-RCL, 2024 WL 4346291 (D.D.C. Sept. 30, 2024) (Judge Royce C. Lamberth). This case is a nearly five-year-old “battle to extract overdue withdrawal liability, delinquent contributions, and other damages from the defendants, entities and natural persons associated with a network of truck dealerships and service stations (collectively, ‘M&K’).” The court began by lambasting M&K: “All throughout, M&K has tried to hide behind a Potemkin corporate structure in a credulity-straining campaign to convince the court that it is judgment-proof. M&K has also failed on multiple occasions to comply with discovery obligations and express orders of this Court, incurring sanctions as a result.” Throughout, IAM’s attorneys, Proskauer Rose LLP, “undertook a herculean effort to overcome M&K’s obduracy and unwind its web of legal defenses, eventually culminating in a grant of summary judgment for their clients” and recovering more than $15 million. The motion before the court here was IAM’s motion for attorney’s fees. Given the above introduction, you can imagine that this did not go well for M&K. The court agreed that the proper hourly rate to be employed was Proskauer’s current rate, as this compensated IAM for the delay in achieving its goals, and acted as a “surrogate for…interest or other inflation adjustments.” The court further agreed that almost all of Prosakuer’s time was reasonable, ruling that (a) M&K’s analogies to other cases were inapt “because they do not approximate the complexity and scale of the suit at hand,” (b) Proskauer’s block billing was not ideal, and it “would do well to guard against block-billing in the future,” but the “‘relatively small fraction of [block-billed] entries,’ viewed in context, does not ‘call into question the overall reasonableness of the request,’” (c) Proskauer’s billing for “internal conferences” did not result in double-counting and its “leanly staffed strategy sessions did not unduly run up the tab in their representation of IAM,” (d) Proskauer’s billing of “large time blocks,” sometimes over eight hours, was “scattered” and “not enough to raise eyebrows,” (e) IAM’s time spent pursuing various M&K control group entities and persons was compensable, even if many of those claims were ultimately voluntarily dismissed, (f) IAM could not recover for time spent “e-filing” but “time spent calendaring is compensable,” (g) Proskauer properly billed for time spent on e-mails, and (h) it would be “picayune” to reduce Proskauer’s bill for an isolated potentially duplicate entry. The court further found that IAM’s costs were reasonable, which were largely composed of legal research. As for timing, the court ruled that IAM was entitled to interest on its fees and costs from the date of judgment, not the date of the court’s summary judgment ruling or its ruling on this motion. Finally, the court slightly discounted Proskauer’s fees relating to its work on the reply brief in support of its fee motion, finding them “excessive, if only slightly.” The court concluded by noting that “plaintiff’s counsel showed admirable perseverance, creativity, and technical prowess in the face of the defendants’ sometimes tenacious, but often dilatory and evasive, litigation strategies.” Thus, for their “prodigious sweat equity,” the court awarded fees in the amount of $2,533,576.52, and costs in the amount of $187,769.17, for a total award of $2,721,345.69.
Breach of Fiduciary Duty
Fourth Circuit
Fitzwater v. CONSOL Energy, Inc., No. 1:17-CV-03861, 2024 WL 4361963 (S.D.W. Va. Oct. 1, 2024) (Judge John T. Copenhaver, Jr.). The plaintiffs in this action are retired coal miners who worked for defendant CONSOL Energy or its subsidiaries during various times between 1969 and 2014. They allege that CONSOL and related defendants made misrepresentations to them about their retirement welfare benefits, including retiree medical coverage and the option to purchase life insurance, in violation of their fiduciary duties under ERISA. This action was filed in 2017 and has been through a motion to dismiss (Your ERISA Watch’s notable decision in our October 28, 2020 edition) and a summary judgment motion. It was tried in February of 2021 and this order constitutes the court’s long-awaited findings of fact and conclusions of law. The court found that CONSOL engaged in a “union avoidance strategy” that included promises to employees that their benefits were “as good or better than those of union employees.” This included “oral representations to the effect that, if the employees reached 55 years of age and 10 years of service, they would receive retirement benefits for life, either directly or through implication.” However, in actuality the plan contained a reservation of rights that allowed CONSOL to terminate the plan, and in 2019 that is precisely what CONSOL did, informing its employees that they were no longer entitled to any further benefits. In its findings, the court noted that each of the seven plaintiffs was told different things, and acted in different ways based on those things, which affected its ruling. Regardless, the court concluded that CONSOL, in attempting to deter unionization, breached its fiduciary duty by overselling its retirement benefits program to its employees. This strategy was “uniform across the company at the direction of the Chief Executive Officer of the company” and defendants’ misrepresentations “regarding the future of their benefits were part of that strategy, designed to save CONSOL large sums of money over decades.” The court further found that CONSOL’s plan administration and employment functions “blended together” in a way that created a conflict of interest, and that CONSOL acted as a fiduciary when its HR managers conducted meetings with employees because those meetings “involved plan-related communications by agents of CONSOL, which retained control over plan administration.” Having established a breach, the court next addressed whether the plaintiffs reasonably and detrimentally relied on CONSOL’s misstatements. The result was mixed for the plaintiffs. The court found that three of the plaintiffs were able to prove their fiduciary breach claims while four could not, either because they knew the plan had the right to terminate their benefits or they did not rely on CONSOL’s misstatements in conducting their financial planning. However, the court ruled that one of the plaintiffs who passed this test was still not entitled to relief because his claim was time-barred. Furthermore, plaintiffs were not entitled to relief on their Section 1021 claim because they did not demonstrate that they were not provided with summary plan descriptions in 2021 when the plan “split,” or that there was any harm from a non-disclosure, as the split “did not involve material changes in the delivery of benefits.” Finally, the court tackled the appropriate remedy for the two plaintiffs who succeeded. The court denied their request for equitable surcharge and disgorgement, and instead imposed reformation. The court ordered each of the plaintiff’s “retiree welfare benefits plan be reformed to provide the benefits as each reasonably expected, that is medical, prescription drug, vision, dental, and life insurance for the remainder of life and orders and enjoins CONSOL to enforce the plan as thus reformed.”
Seventh Circuit
Walther v. Wood, No. 1:23-CV-294-GSL-SLC, 2024 WL 4345770 (N.D. Ind. Sept. 30, 2024) (Judge Gretchen S. Lund). This is a putative class action by former participants in the now-defunct employee stock ownership plan (“ESOP”) of 80/20, Inc., an aluminum manufacturing company. The founder of 80/20 drafted a will and had a written agreement with the company which expressed a preference for selling his ownership stake to the ESOP after he died, and provided for a 180-day window within which to do so. Plaintiffs allege that several individuals and companies breached their fiduciary duties to the ESOP after the founder died and his ownership interest was sold to a third party instead of to the ESOP. Several defendants filed a motion to dismiss, arguing that plaintiffs lacked standing. Specifically, defendants contended that plaintiffs’ claims were speculative because there was no way of knowing whether the company’s value would have increased if the plan had purchased 80/20’s shares, or whether plaintiffs’ accounts “would have been, and would continue to be, worth more had Defendants not violated ERISA.” The court examined the owner’s will and his buy-sell agreement with the company and concluded that the plan only had the right to make an offer to purchase the outstanding shares and not the right to purchase them outright. However, the court concluded that plaintiffs plausibly alleged that the trustee’s delay after the founder’s death “increased the probability that the Plan’s purchase of any of the outstanding shares would be diminished. If nothing else, earnest negotiations starting beyond the 180-day period meant that third party purchasers could now be introduced.” Thus, the court denied the trustee’s motion to dismiss plaintiffs’ breach of fiduciary duty claim. The court dismissed all of plaintiffs’ other claims, including their prohibited transaction claim and their claims against the company officer defendants and the purchasing entity “since no right to purchase existed.” The court ruled that the sale of the shares after 180 days, even as alleged by plaintiffs, was “consistent with the terms of the will and the Buy-Sell Agreement.” Thus, the court granted the defendants’ motions to dismiss in their entirety with the exception of the single breach of fiduciary duty claim against the trustee.
Ninth Circuit
Chea v. Lite Star ESOP Comm., No. 1:23-cv-00647-JLT-SAB, 2024 WL 4357002 (E.D. Cal. Sep. 30, 2024) (Judge Jennifer L. Thurston). Linda Chea, a participant in the Lite Star Employee Stock Ownership Plan (“ESOP”), filed suit alleging that the ESOP fiduciaries committed various violations of ERISA and seeking relief under Sections 502(a)(2) and (a)(3). In this decision, the district court largely adopted the magistrate judge’s report and recommendation denying, with one exception, the defendants’ motions to dismiss. Before getting to the motion to dismiss, the court reviewed the magistrate’s decision regarding whether it should consider three documents related to the challenged ESOP transactions proffered by the defendants. The district court agreed with the magistrate that while none were judicially noticeable, all three were incorporated by reference and essential to Ms. Chea’s complaint. The court also agreed with the magistrate that the plaintiff had Article III standing to bring her claims, reasoning that “Plaintiff plausibly alleges that, as an ESOP participant, she was injured by the prohibited ESOP Transaction caused by the PFS Defendants’ insufficient valuation analysis and process that failed to account for pre-existing Company ‘adverse events,’ and by the Hagen Defendants retained control of the Company after the sale and Defendants’ continued enjoyment of the overmarket debt service.” Next, the court agreed that plaintiff had adequately alleged that PFS, the operating company of one of the other trustee defendants, was itself a fiduciary. The court also agreed that the plaintiff had plausibly alleged that the ESOP loan transaction was a non-exempt prohibited transaction because plaintiff stated a “plausible claim that the ESOP loan neither was based upon a reasonable rate of interest, nor primarily for the benefit of ESOP participants.” The court likewise agreed with the magistrate that the plaintiff had adequately alleged that these defendants committed fiduciary breaches through allegations that “the PFS Defendants approved the ESOP Transaction without adequate and appropriate investigation because of their loyalties to the Hagen Family Defendants, who hand-picked the PFS Defendants and continued to control the Company, and thus failed to act solely in the interest of the participants and beneficiaries[.]” Turning to another set of parties to the transactions, the Hagen Defendants, the court concluded that the plaintiff adequately alleged their “status as at least functional ERISA fiduciaries in relation to the ESOP Transaction and its remediation.” With respect to their breaches, the court found that the “allegations suggest the Hagen Defendants fell below the ERISA standard of care by their direct or indirect acts/omissions relating to valuation of the ESOP Transaction and its aftermath” and knowingly participated in the prohibited ESOP transaction. The court reached the same conclusion with respect to the plan sponsor, concluding that the plaintiff adequately alleged fiduciary status and breach by the company with respect to the ESOP transactions. Finally, because no party objected, the court adopted the magistrate’s recommendation with respect to the dismissal of a count alleging that the defendants violated a an ERISA anti-indemnification provision. Thus, with the exception of this count, the complaint survived the motions to dismiss.
Exhaustion of Administrative Remedies
Seventh Circuit
Taylor v. Principal Life Ins. Co., No. 3:24-CV-603 DRL-SJF, 2024 WL 4381223 (N.D. Ind. Oct. 2, 2024) (Judge Damon R. Leichty). Plaintiff Jesse Taylor lost his leg in a motorcycle accident. However, when he submitted a claim for benefits under his ERISA-governed accidental dismemberment benefit plan, defendant Principal Life Insurance Company, the insurer of the plan, denied it, contending that his blood alcohol level was above the legal limit, voiding his coverage. Taylor brought this action and Principal moved to dismiss, arguing that Taylor did not exhaust his administrative remedies by appealing Principal’s denial of his claim. The court was skeptical of Taylor’s arguments. It noted that Taylor did not allege that he had exhausted, and suggested that his futility argument was unlikely to succeed because “the court cannot say ‘it is certain that [his] claim will be denied on appeal.’” Taylor argued that he did not have the plan documents, but the court countered that he could have asked for a copy, and furthermore “he knew enough about the ERISA plan to sue for dismemberment benefits, and any request for benefits necessarily requires careful review of the plan’s provisions.” However, the court agreed with Taylor’s final argument regarding exhaustion that “the written notice denying benefits never communicated the procedure for pursuing review.” The court stated, “If this was not done, as Mr. Taylor now contends (and consistent with his pleading), the process of review was fairly unavailable under the law.” The court thus denied Principal’s motion to dismiss, although it did grant Principal’s motion to strike Taylor’s jury demand “because ‘there is no right to a jury trial in an ERISA case,’ equitable as it is.”
Life Insurance & AD&D Benefit Claims
Seventh Circuit
Boyle v. L-3 Communications Corp., No. 21-CV-02136, 2024 WL 4346523 (N.D. Ill. Sept. 30, 2024) (Judge Andrea R. Wood). Plaintiff Pauline Boyle is the widow of Thomas J. Boyle, Jr., who died in Afghanistan in 2012 while working as a civilian trainer of the Afghan National Police. Ms. Boyle submitted a claim for accidental death benefits which was denied by defendant National Union Fire Insurance Company of Pittsburgh, PA. Ms. Boyle then brought this suit against National Union and several other defendants who she alleges either employed Mr. Boyle or were involved in administering his benefits. National Union filed a counterclaim against Ms. Boyle in which it sought a declaration that Mr. Boyle’s death was not covered because it “resulted from declared or undeclared war, or an act of declared or undeclared war.” Several defendants filed motions to dismiss (but apparently not National Union), and Ms. Boyle filed a motion to dismiss National Union’s counterclaim; all were decided in this ruling. The court first addressed the motion to dismiss by defendants alleged to be Mr. Boyle’s employer. The court granted their motion as to Ms. Boyle’s claim for breach of contract because that claim was preempted by ERISA. As for Ms. Boyle’s ERISA claims against the employer and benefit administration defendants, the court agreed with defendants that New York law applied for the purpose of determining the timeliness of those claims because the plan sponsor and National Union were both headquartered there, and the plan identified New York law as controlling. Under New York law, the court ruled that Ms. Boyle’s Section 502(c) statutory penalty claim was untimely. The court further ruled that her Section 502(a)(1)(B) claim for benefits against the employer was untimely, and that the benefit administration defendants were improper defendants under ERISA. As for Ms. Boyle’s 502(a)(3) claim, she alleged that defendants failed to give her and her husband sufficient information about the plan’s coverage and exclusions, shifted their rationales for denying her claim, and kept her in the dark about her rights, among other failures. The court concluded that it was “unclear from the Complaint and accompanying documents exactly when Boyle discovered the alleged breaches,” and thus denied defendants’ motion to dismiss Ms. Boyle’s (a)(3) claim on timeliness grounds “at this juncture.” The court then agreed with defendants that Ms. Boyle had no right to a jury on her (a)(3) claim, but because she retained that right with regard to her breach of contract claim against National Union, the court denied their motion without prejudice. Finally, the court addressed National Union’s counterclaim for declaratory relief and agreed with Ms. Boyle that it should be dismissed because “it serves no useful purpose…plaintiff’s complaint will address the same substantive legal issue.” As a result, Ms. Boyle’s action will continue but with a more limited scope.
Medical Benefit Claims
Second Circuit
Savage v. Rabobank Med. Plan, No. 19 CIVIL 9893 (PGG), 2024 WL 4354986 (S.D.N.Y. Sep. 30, 2024) (Judge Paul G. Gardephe). In this case, Sheri Savage, the executor of the estate of her sister, Cindy Sieden, a healthcare plan participant, challenged UnitedHealthcare’s denial of mental health benefits for Sieden’s fourteen-year-old daughter, J.S., who suffered from anorexia, major depressive disorder, and anxiety. J.S. had a long and harrowing history of self-harm, including numerous suicide attempts beginning at age eight. On the recommendation of her outpatient treatment team, she was admitted to residential treatment at Avalon Hills in Utah on September 22, 2016. United initially paid for a little less than three months of this level of treatment, at which point it determined that J.S. had sufficiently progressed that she could be treated at a lower level of care: partial hospitalization. Cindy Sieden appealed this denial, which United upheld, and then paid out-of-pocket for the boarding fee at Avalon while her daughter continued treatment at the approved level of care. After another few weeks, on January 24, 2017, United determined that J.S. had made sufficient progress that she no longer required treatment at her current level of care, and upheld this determination on two levels of appeal. J.S. nevertheless remained in residential treatment at Avalon, and her mother made another request for coverage for residential treatment on November 15, 2017, which United again denied. J.S. remained at Avalon until around the time of her mother’s death in May 2018. The estate then filed suit. In this decision, the district court upheld all of the benefit denials. As an initial matter, the court held that arbitrary and capricious review applied based on the plan’s grant of discretionary authority to United, rejecting the estate’s argument that de novo review was appropriate given a failure to consider post-service claims and likewise rejecting that United operated under a structural conflict of interest. Applying that standard, the court determined that “UBH has offered a rational basis for its determination to terminate benefits for residential care on December 5, 2016, and that it has offered substantial evidence in support of that determination.” Likewise, the court concluded “that UBH provided J.S. with a ‘fair and full’ review of her claim, and explained why benefits for partial hospitalization were being terminated … [and] that UBH’s decision terminating benefits for these services in February 2017 was supported by substantial evidence.” In reaching these conclusions, the court was not moved by the fact that J.S.’s treatment team strongly disagreed with the determinations of the reviewing doctors at United, noting that United was not required to defer to these opinions. Although United’s doctors touted the improvement that J.S. had made and her need to be closer to her family (which her treatment team thought would exacerbate her problems), the court also noted that under United’s guidelines there had to be a reasonable expectation that J.S. would improve in a “reasonable period of time” and given that she had been at Avalon for several months at the time of the denial, there was no such reasonable expectation. The court applied similar reasoning in concluding “that UBH’s decision to deny benefits for residential-level care as of November 15, 2017 had a rational basis and was supported by substantial evidence.” Finally, the court rejected the estate’s argument that “UBH exceeded its authority under the Plan, because its Level of Care Guidelines are inconsistent with the Plan’s requirement that benefit determinations be made on the basis of ‘prevailing medical standards.”” The court held that United’s guidelines were consistent with such standards “and that UBH’s use of the Guidelines in making benefit determinations falls within the discretion it is granted in the Plan.”
Pension Benefit Claims
Second Circuit
Masten v. Metropolitan Life Ins. Co., No. 18 Civ. 11229 (DEH), 2024 WL 4350909 (S.D.N.Y. Sep. 27, 2024) (Judge Dale E. Ho). In this decision, the district court denied in its entirety the defendants’ motion for summary judgment in a previously certified class action alleging that the defendants’ use of outdated mortality tables violated ERISA’s requirement that qualified joint and survivor annuities be the actuarial equivalent to a single life annuity. First, the court addressed and rejected the defendants’ argument that one form of annuity available under the plan, a 12-year Certain and Life Annuity, qualifies as a single life annuity for purposes of comparison. The court therefore rejected defendants’ argument that “Plaintiffs’ expert should have compared the 12YCLA to the QJSA.” The court next addressed and likewise rejected the defendants’ argument challenging the plaintiffs’ expert determination that the survivor annuities were not equivalent to single life annuities under the plan. The court reasoned that “Defendants fail to convince the Court that Plaintiffs’ methodology was erroneous as a matter of law. The Court is not aware of, and Defendants do not cite, any caselaw stating that Plaintiffs’ expert was required to use the same factors to compare SLAs to CLAs or other optional forms of benefits under the Plan.” The court also rejected the defendants’ claim that the plaintiffs had abandoned their reformation claim, instead reiterating, as it had previously held, that “Plaintiffs here have proposed one model, which, if applied according to their methodology, would result in a[] [reformed plan that] increase[s] [] benefits for all the class members.” The court left for trial the determination whether the plaintiffs’ proffered method of calculating damages was consistent with ERISA’s requirements. Moreover, although the court noted that the plaintiffs had abandoned their breach of fiduciary duty claims, it nevertheless concluded that they plausibly raised an unjust enrichment claim. The court also held that the plaintiffs’ claims that defendants violated ERISA’s actuarial equivalence requirements were applicable to both forms of survivor annuities – a 50% annuity and a 75% annuity – that the plan offered. Finally, the court rejected the defendants’ argument that one of the named plaintiffs – Catherine McAlister – should be dismissed because she signed a release, albeit one that carved out claims that arose after the release was signed and claims for vested benefits. The court held that the release did not apply to McAlister’s claims both because her annuity start date was after she signed the release and was a claim for vested benefits.
Third Circuit
Campbell v. Board of Directors of Bryn Mawr Tr. Co., No. 22-2723, __ F. App’x __, 2024 WL 4380142 (3d Cir. Oct. 3, 2024) (Before Circuit Judges Shwartz, Matey, and Scirica). Plaintiff Joseph Campbell (not the author of The Hero with a Thousand Faces) was the president and CEO of Royal Bank America and Royal Bancshares of Pennsylvania Inc. and a participant in the Royal Bank Supplemental Executive Retirement Plan. In 2017, the Bryn Mawr Trust Company acquired Royal Bank, terminated the plan, and Campbell was issued a lump sum payment. In issuing payments to affected participants, the plan used the Citi Pension Liability Index Rate as the discount rate and thereby saved itself a tidy $3 million by not using the 5-Year United States Treasury Note rate. Campbell objected, arguing that the plan terms required the use of the Treasury rate, but the Bryn Mawr benefits committee upheld its decision. Campbell brought this action and prevailed at the district court. (Your ERISA Watch reported on this decision in our September 7, 2022 edition.) The plan appealed. In this unpublished decision, the Third Circuit affirmed, agreeing that “[t]he plain language of the Plan shows that use of the Citi Rate in issuing Campbell’s lump-sum payment was unreasonable.” The plan argued that the provision at issue only addressed the funding of the plan, not payments from it, but the court found this argument “nonsensical” because the trust was merely a “pass-through” account. “[M]oney that went in swiftly thereafter went out,” and thus there was no reason to use different rates. The Third Circuit further agreed with the district court that the Bryn Mawr board of directors had acted in bad faith. The record showed that the bank’s CFO did not give the benefits committee crucial information, the CFO misled the committee about the funding of the plan, the committee did not adequately investigate what the plan required, and Campbell was not provided with the trust agreement funding the benefits until after he sued. As a result, “the District Court correctly entered judgment in Campbell’s favor and acted within its discretion in awarding him attorneys’ fees, interest, and costs.”
Ninth Circuit
Sheets v. Admin. Comm. of the Northrop Grumman Space & Mission Sys. Salaried Pension Plan, No. 2:22-cv-07607-MEMF (PDx), 2024 WL 4372265 (C.D. Cal. Sep. 30, 2024) (Judge Maame Ewusi-Mensah Frimpong). Michael Sheets, a participant in the Northrop Grumman Space & Mission Systems Pension Plan (“Plan”) brought suit claiming the plan failed to properly credit his time at a Northrop-acquired company, TRW, for which Mr. Sheets worked before leaving to work for Boeing and then later returning to work for Northrop. Specifically, Mr. Sheets alleged that Northrop enticed him to leave Boeing to work for Northrop by promising him that his time at TRW would be bridged for purposes of calculating his pension benefits at Northrop. After Mr. Sheets went to work for Northrop and retired, Northrop lived up to this promise for seven years, paying him a monthly pension benefit of over $1000 a month, but then in 2021 informed Mr. Sheets that he owed $52,299 in overpaid benefits and was entitled to only $484 a month. In a prior order, the court partially granted the Northrop Defendants’ motion to dismiss, finding that Mr. Sheets failed to adequately allege that he was not provided with his claims file and that ERISA preempted his state law claims. But the court also concluded that he adequately pleaded both a claim for benefits and a claim for breach of fiduciary duty. After Mr. Sheets filed a Second Amended Complaint (“SAC”), Defendants again moved to dismiss and to have the court consider certain “exhibits” as either judicially noticeable or incorporated by reference into the complaint. Addressing the exhibit issue first, the court concluded that most of the proffered documents (plan documents, a summary plan description, and parts of Mr. Sheets’ claims file) could be considered as incorporated by reference and considered by the court on a motion to dismiss. On the basis of the submitted plan documents, and contrary to its previous holding, the court concluded that Mr. Sheets failed to plausibly allege that he was entitled to benefits because he could not point to a plan provision that entitled him to bridging of his services for purposes of the benefits sought. The court therefore granted Northrop’s motion to dismiss this claim. With respect to the claim for fiduciary breach, the court granted dismissal of the claim to the extent that it turned on a failure by the Northrop fiduciaries to properly investigate the claim or interpret the plan, finding these claims largely coextensive with the benefit claim and decided by the court’s ruling dismissing that claim. The court also concluded that Mr. Sheets failed to adequately allege fiduciary breach on the basis of inadequate hiring, training, or supervision by Northrop. But the court also concluded that Mr. Sheets adequately alleged that the Northrop defendants breached their duties through misrepresentations about his benefits even though these misrepresentations were oral and were made prior to his becoming a “rehired” Northrop employee. The court also concluded, as it had previously, that the claim was timely because even though the relevant misrepresentations were made outside the six-year statutory period, Mr. Sheets had adequately alleged fraud or concealment. Finally, the court granted Northrop’s motion to dismiss Mr. Sheets’ claim for penalties for failure to provide him with requested plan documents. Because Mr. Sheets addressed this request to the Northrop Grumman Benefits Center rather than to the plan administrator (albeit at the exact same address), the court concluded that Mr. Sheets failed to state a disclosure claim and granted Northrop’s motion to dismiss this count.
Provider Claims
September was the end of the Civil Justice Reform Act’s reporting period for the federal courts, and as a result we had a slew of cases this week, a good chunk of which involved claims brought by medical providers. Rather than discuss them all individually we thought it made sense to group them together and quickly discuss some common trends. As you will see below, this area of law is currently in flux, with courts often arriving at different conclusions on similar facts.
One threshold issue in these cases is standing. ERISA provides that claims may be brought by a “participant or beneficiary,” but medical providers are neither. Courts generally let providers pursue the claims of their patients if the patients assign their claims to the provider. However, this rule raises a number of issues. First, providers must adequately plead the details regarding the assignment. The provider didn’t do this in Murphy Medical Assocs., LLC v. Emblemhealth, Inc., No. 3:22-CV-59 (CSH), 2024 WL 4388305 (D. Conn. Oct. 3, 2024) (Judge Charles S. Haight, Jr.), which earned it a dismissal. However, in Jay Kripalani M.D., P.C. v. Independence Blue Cross, No. 23-CV-04225 (NRM) (ARL), 2024 WL 4350492 (E.D.N.Y. Sept. 30, 2024) (Judge Nina R. Morrison), even though the complaint was light on allegations regarding assignment, the court denied a motion to dismiss, ruling that the parties’ course of conduct “implied” that an assignment existed.
But alleging an assignment is not enough; many benefit plans bar patients from assigning their claims to providers. This was the case in Prestige Inst. for Plastic Surgery, P.C. v. Aetna, Inc., No. 3:23-CV-940 (VAB), 2024 WL 4349012 (D. Conn. Sept. 30, 2024) (Judge Victor A. Bolden). Some providers try to get around these anti-assignment clauses. One method is to omit any discussion of the plan in the complaint so the court can’t consider the plan’s anti-assignment language in ruling on a motion to dismiss. This worked in Kripalani. Or, a provider can plead that it is acting as the authorized representative of the patient, or as the patient’s power of attorney. This didn’t work in Prestige Inst., as the court ruled that the provider could not circumvent the anti-assignment clause in this way. This argument had more success in Advanced Physical Medicine of Yorkville, Ltd. v. Cigna Health & Life Ins. Co., No. 22-CV-02979, 2024 WL 4346690 (N.D. Ill. Sept. 29, 2024) (Judge Andrea R. Wood), in which the court ruled that the provider could act as the patient’s authorized representative, despite an anti-assignment clause. However, the court concluded that Federal Rule of Civil Procedure 17 still required the patient to be joined in the action as the real party in interest.
Even if a provider can show that it has standing, more procedural hurdles are in the way. One is exhaustion of administrative remedies. The provider managed to dodge this bullet in Metropolitan Neurosurgery v. Aetna Life Ins. Co., No. CV 22-00083 (JXN)(MAH), 2024 WL 4345287 (D.N.J. Sept. 30, 2024) (Judge Julien Xavier Neals), as the court ruled that it could not say, based on the allegations of the complaint, whether the claim at issue was fully exhausted, and thus denied the insurer’s motion to dismiss on this ground. The provider in Murphy Medical Assocs. was not so lucky, as the court ruled that it had failed to plausibly allege exhaustion – its allegations detailing its telephone calls with the insurer were not enough. Also, providers must be careful to sue the right defendant; in Advanced Physical Medicine, the provider sued Cigna, but Cigna was only acting as the claim administrator. The proper defendant was the self-funded plan sponsor.
Next, of course, is the 800-pound gorilla: ERISA preemption. Providers usually bring state law claims for relief, but those claims are frequently dismissed by federal courts because ERISA preempts claims “relating to” benefit plans. This is what happened in Prestige Inst., California Brain Inst. v. United Healthcare Servs., Inc., No. 2:23-CV-06071-ODW (RAOX), 2024 WL 4351856 (C.D. Cal. Sept. 30, 2024) (Judge Otis D. Wright, II), and THC Houston LLC v. Blue Cross & Blue Shield of Ala., No. 4:23-CV-02178, 2024 WL 4355192 (S.D. Tex. Sept. 30, 2024) (Judge Charles Eskridge). However, not all claims are preempted. In Kripalani, the court ruled that the provider’s breach of contract and unjust enrichment claims could proceed because the provider’s allegations were based on a letter agreement with the insurer independent of the plan. And in THC Houston, although the court dismissed the provider’s breach of contract claim as preempted, it refused to dismiss the provider’s fraud claim because the misrepresentations at issue were about how much the insurer would pay and not about what plan benefits were available.
Finally, even if a provider can get past all the issues outlined above, it must properly allege why it is entitled to relief. Courts typically will not allow providers to simply claim that the insurer owes it the amount requested without supporting proof. This was an issue in both Metropolitan Neurosurgery and Murphy Medical Assocs., in which the courts dismissed claims where the provider did not point to any plan provisions that required the insurer to cover the treatment at issue or pay the requested amount. Finally, it’s probably not worth bringing a claim for breach of fiduciary duty under ERISA Section 502(a)(3). As the court pointed out in Murphy Medical Assocs., those claims are often invalid because they are duplicative of claims for benefits under Section 502(a)(1)(b), and cannot be assigned to providers in any event.
Statute of Limitations
Eleventh Circuit
Howell v. Argent Trust Co., No. 1:22-CV-03959-SDG, 2024 WL 4369688 (N.D. Ga. Sept. 30, 2024) (Judge Steven D. Grimberg). The plaintiffs in this putative class action are participants in The North Highland Company Employee Stock Ownership and 401(k) Plan. Plaintiffs contend that in 2016 the defendants – including Argent Trust, the plan’s trustee, and officers and directors of the employer – engaged in a corporate reorganization transaction which turned the old company (Oldco) into a new company (Newco) while Oldco’s operating assets were diverted into a holding company. Plaintiffs allege this had the effect of giving the plan 80% of the equity in the new holding company whereas before it owned 100% of the common stock in Oldco. The remaining 20% went to defendants, among other recipients. Plaintiffs further allege that over time the plan’s equity was diluted so that its ownership in the holding company dropped to 42%, and in 2021, when Newco sold its entire interest in the holding company back to the holding company, the plan “did not receive fair market value for this transaction and was therefore deprived of at least $38 million.” On the last possible day of the six-year limitation period within which plaintiffs could assert claims regarding the reorganization, they filed this suit containing 17 causes of action under ERISA. Defendants filed a motion to dismiss, arguing that plaintiffs did not exhaust their administrative remedies until after they filed their lawsuit, and thus any claims against them were untimely, and also moved to compel arbitration. The court addressed the arbitration issue first, ruling that the plan’s arbitration clause “contains a fatal flaw because it prohibits recovery of certain forms of relief that ERISA makes available.” The court agreed that ERISA claims are generally arbitrable, and that the plan had consented to arbitration, but the clause contained a class action waiver which “acts as an impermissible prospective waiver of statutory rights and remedies.” Citing numerous recent circuit court cases, the court relied on the “effective vindication” doctrine to determine that the class action waiver interfered with plaintiffs’ statutory rights and thus “impermissibly takes away what ERISA gives.” The court thus denied defendants’ motion to compel arbitration and turned next to their statute of limitations argument. The court acknowledged that plaintiffs’ claims about the company’s reorganization “were filed within the necessary timeframe.” However, “they did not begin to pursue their administrative remedies until after filing suit and more than six years after the last act related to the Reorganization. In this Circuit, exhaustion has long been held a prerequisite to suit.” As a result, the court granted defendants’ motion to dismiss plaintiffs’ claims relating to the reorganization because they were time-barred. Their claims regarding the devaluation of the plan after the reorganization and the 2021 transaction will proceed, however, and defendants were ordered to file an answer as to those allegations.