Suchin v. Fresenius Med. Care Holdings, No. Civ. JKB-23-01243, 2024 WL 3495778 (D. Md. Jul. 22, 2024) (Judge James K. Bredar)

Lovers of Don Quixote, and we count ourselves among them, might fondly recall scenes of Sancho Panza sitting as a judge and earnestly attempting to dole out justice. He endeavored, if not always successfully, to follow Don Quixote’s guidance:

“Never let yourself be guided by arbitrary law, which is favored by the ignorant who think they’re so clever…. 

When equity can and should find favor, don’t put the whole weight of the law on the delinquent, because the fame of the severe judge is no more than that of the compassionate one.”

Perhaps, like many a judge before and after him, Sancho Panza struggled mightily and most acutely while sitting as a court of equity.

Equitable remedies have always been a particularly tricky issue in ERISA cases. When it enacted ERISA fifty years ago, Congress expressly incorporated equitable principles into the statute, authorizing future plaintiffs to sue for “other appropriate equitable relief” under Section 502(a)(3) in instances where no other provision of the notoriously complex statute provides an adequate remedy. Where other provisions of ERISA expressly enumerate the remedies they provide, Section 502(a)(3) broadly opens up the realm of possibilities by empowering courts to award typically equitable forms of relief.

For years the Supreme Court has weighed in on matters of equitable remedies – what they are, whether and when they are appropriate, and how courts should think of them. In Holland v. Florida, 560 U.S. 650 (2010), the Supreme Court emphasized “the need for flexibility and avoiding mechanical rules” in “a tradition in which courts of equity have sought to relieve hardships, which from time to time, arise from hard and fast adherence to more absolute legal rules, which, if strictly applied, threaten the evils of archaic rigidity.”

The district court in this week’s notable decision invoked this language and applied these equitable principles in its consideration of the equitable remedies sought by plaintiff Dr. Craig Suchin in his quest to right fiduciary wrongs under ERISA.

Dr. Suchin, a former radiologist, is terminally ill with a neurological disorder. He alleges that his former employer, defendant Fresenius Medical Care Holdings, misrepresented the terms of its employee long-term disability and life insurance benefit plans, stating they provided far greater benefits than they actually did, and failed to provide him with ERISA-mandated documents, including summary plan descriptions, which would have cleared up matters.

Because of these misrepresentations and omissions, Dr. Suchin and his wife expected that his long-term disability benefits would be worth 60% of his monthly salary – about $23,000 per month – and that the life insurance proceeds would be worth $1.2 million.

However, the terms of the plans actually capped long-term disability benefits at $10,000 monthly, subject to offsets for Social Security disability insurance payments, and provided life insurance benefits worth only $400,000. Dr. Suchin maintains that had he known the benefits were much less generous than he anticipated, he would have purchased supplemental policies to cover his family’s needs. Now that he is battling a debilitating and terminal illness, it is too late to do so.

Dr. Suchin asserts three causes of action against Fresenius. Counts one and two allege that Fresenius breached its fiduciary duties to Dr. Suchin regarding the long-term disability and life insurance plans, respectively, and seek equitable relief under Section 502(a)(3). Count three alleges that the employer failed to produce statutorily-mandated documents and seeks penalties pursuant to Section 502(c)(1)(B).

On February 6, 2024, the court dismissed counts one and two of Dr. Suchin’s complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Your ERISA Watch covered that decision in our Valentine’s Day newsletter earlier this year. In that decision, the court rejected many of Fresenius’s arguments in favor of dismissal. It held that Dr. Suchin’s life insurance fiduciary breach claim was ripe even though he is still alive. It also concluded that counts one and two were properly brought under Section 502(a)(3) rather than Section 502(a)(1)(B), and that Fresenius was a fiduciary that plausibly breached its fiduciary duties with respect to both plans. Despite reaching these conclusions, the court dismissed the first two causes of action “on the grounds that Suchin failed to show he was entitled to the requested remedies of reformation, equitable estoppel, or surcharge.”

However, the court’s dismissal was without prejudice, and Dr. Suchin amended his complaint, reasserting the same three causes of action. Fresenius responded by once again moving to dismiss. Upon consideration, the court granted the motion in part and denied it in part.

To begin, the court stressed that it saw no reason to revisit any of its holdings from its February analysis that were favorable to Dr. Suchin. Thus, it proceeded “on the assumption that these issues have been resolved for the purposes of this stage of the litigation.” Instead, the decision narrowed its focus to analyzing whether the amended complaint now adequately states a claim for equitable estoppel or reformation.

Breaking its decision in two, the court tackled equitable estoppel first. As the court stated, “[e]quitable estoppel is a ‘traditional equitable remedy’ that operates to place the plaintiff ‘in the same position he would have been in had the representations been true.’” To state a claim for equitable estoppel under Section 502(a)(3), the court clarified that a plaintiff must plausibly allege five things: “(1) a promise; (2) reasonable reliance on that promise; (3) injury caused by the reliance; (4) injustice if the promise is not enforced; and (5) the presence of extraordinary circumstances justifying equitable relief.” The court then explained why it found that Dr. Suchin adequately alleged all five elements with respect to both plans.

Unlike the original complaint, the amended complaint alleges that Fresenius made a promise to Dr. Suchin by stating the more generous benefit amounts for both plans on its employee website. “These allegations, which were not present in the original Complaint, suffice to elevate Fresenius’s alleged communications from the realm of omission to the realm of affirmative misrepresentations.”

As for whether reliance on these promises was reasonable, the court said that Dr. Suchin is only required to plead plausible facts from which it can infer reasonable reliance, but that he is not required to affirmatively prove that his reliance was reasonable at this stage. “Viewing the facts in the light most favorable to the plaintiff, the Court cannot conclude that as a matter of law Suchin’s reliance on Fresenius’s misstatements – coupled with the alleged omissions – was unreasonable.”

On the third prong, the court held that Dr. Suchin has sufficiently alleged he was injured by relying on Fresenius’s actions. The court also found that, assuming Dr. Suchin’s account of what occurred is true, “it would be unjust to deny him relief.”

Fifth, and last, the court found that the allegations in the complaint of Fresenius’s failure to provide plan documents and its website that misstated benefit amounts constitute extraordinary circumstances justifying equitable relief. At best, the court found the complaint’s allegations paint a picture of gross negligence, and at worst, intentional deception.

In addition, the court rejected Fresenius’ argument that Dr. Suchin cannot receive equitable relief that is at odds with unambiguous plan terms. The court explained that “to hold that estoppel cannot vary unambiguous plan language even when the defendant never provided the plaintiff with that language would be to defeat ERISA’s policy of ‘requiring the disclosure and reporting’ of plan information ‘to participants and beneficiaries.’” The court found the idea of such a ruling absurd. It stressed that plan documents, no matter how clear, are of no use to employees “if they have no way to read that plan.” 

For these reasons, the court denied the motion to dismiss counts one and two insofar as they seek equitable estoppel.

Nevertheless, the court reached a different result with regard to reformation. In contrast to equitable estoppel, the court concluded that Dr. Suchin did not adequately plead entitlement to reformation in counts one and two. The court reiterated that reformation for fraud is only an available remedy where the fraud is in the formation of the contract, and not where, as here, the allegations of fraud and misrepresentations center on events that took place after Dr. Suchin already agreed to be bound by the terms of the plans. Because “the alleged fraud was subsequent to and unrelated to the plaintiff’s assent to the contract,” the court granted the motion to dismiss the claims for reformation, this time with prejudice.

Regardless of the dismissal of reformation as a form of relief available to Dr. Suchin, the decision allows all three of Dr. Suchin’s claims to proceed past the pleading challenge. What equity will require at the end of the journey remains to be seen.

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

Attorneys’ Fees

Second Circuit

E.V. v. United HealthCare Oxford, No. 22 Civ. 2855 (VM), 2024 WL 3534405 (S.D.N.Y. Jul. 25, 2024) (Judge Victor Marrero). Last September, the court granted summary judgment in favor of plaintiffs E.V. and L.V. on their claim for healthcare benefits and ordered the United Healthcare defendants to pay for the costs of L.V.’s stay at a residential treatment center in this ERISA medical benefits action. In that same decision, it should be noted the court denied plaintiffs’ motion for judgment on their claim for violation of the Mental Health Parity and Addiction Equity Act. Plaintiffs have since moved for attorneys’ fees, costs, and interest pursuant to Section 502(g)(1). Plaintiffs moved for an award of $48,105 in attorneys’ fees, $400 in costs, and prejudgment interest at 8.5%. In this decision the court granted plaintiffs’ motion. As a preliminary matter, the court agreed with plaintiffs that they achieved success on the merits which entitles them to fees. The court was also “mindful that ‘ERISA’s attorney’s fee provisions must be liberally construed to protect the statutory purpose of vindicating employee benefits rights.” It therefore wished to fully compensate attorneys Brian King, Robert Liebross, Samuel Hall, and Tara Peterson for their work. Plaintiffs submitted the following rates per hour: Brian King, lead counsel – $600, Robert Liebross, local counsel – $600, Samuel Hall, associate – $325, and Tara Peterson, associate – $325. In addition, plaintiffs submitted the following numbers of hours each attorney worked on the matter: King – 66.8 hours, Liebross – 4.6 hours, Hall – 0.7 hours, and Peterson – 15.5 hours. Defendants did not dispute that the hourly rates were reasonable, but argued in favor of a 50% reduction in the number of hours to reflect that plaintiffs were only successful on half of their claims. The court agreed that the hourly rates were reasonable and in line with prevailing rates and therefore did not reduce the rates. But the court disagreed with defendants’ assertion that partial success should result in a severe reduction of plaintiffs’ award. And more generally, the court found the time spent on the complaint was reasonable. The only reduction the court applied to the requested fee award was a 10% reduction in response to counsel’s decision to put their most senior attorney on tasks like legal research and preparing initial drafts of case documents, which were tasks the court found more suitable for more junior lawyers. Accounting for this $4,810.50 reduction, the court was left with an attorneys’ fee award totaling $43,294.50. The court did not, however, reduce the requested $400 in costs, as this amount was simply the cost of the complaint’s filing fee in the case and defendants did not object. Finally, the court agreed with plaintiffs that 8.5 percent interest fairly compensates them and therefore granted their request for prejudgment interest at this rate.

Breach of Fiduciary Duty

Third Circuit

Kruchten v. Ricoh U.S., Inc., No. 23-1928, __ F. App’x __, 2024 WL 3518308 (3d Cir. Jul. 24, 2024) (Before Circuit Judges Shwartz, Rendell, and Ambro). Relying on its decisions in Sweda v. University of Pa., 923 F.3d 320 (3d Cir. 2019), and, more recently, in Mator v. Wesco Distrib. Inc.,102 F.4th 172 (3d Cir. 2024), clarifying the pleading standards for excessive investment fee claims under ERISA, the Third Circuit Court of Appeals reversed the district court’s dismissal of this fiduciary breach fee action asserted against the fiduciaries of the Ricoh USA, Inc. defined contribution plan. Upon consideration of its own precedents, the Third Circuit agreed with the participant plaintiff-appellants that their allegations closely matched those of the Sweda and Mator plaintiffs and that they therefore sufficiently pleaded plausible claims alleging defendants breached their responsibilities and fiduciary duties under ERISA. Specifically, the appellate court found plaintiffs established meaningful benchmarks by compiling a list of retirement plans and the recordkeeping and administrative fees they paid and comparing those figures to the Ricoh plan. Moreover, the court stated that, contrary to defendants’ position, “the Complaint’s allegations that the RK&A services market is commodified and competitive are not mere ‘conclusions’ that we must reject… While Defendants contend that there are varying types of RK&A services and the charges logically diverge, this is a factual claim that must be determined at a later stage in the case.” Further supporting the court’s conclusion that plaintiffs stated claims for fiduciary breach was the fact that plaintiffs alleged other wrongful behavior and supporting circumstantial evidence, such as defendants’ failure to solicit bids from competing recordkeeping providers. While the Third Circuit clarified that these allegations on their own are not enough to state plausible claims, they nevertheless found them to be important supporting evidence of plan mismanagement. The court of appeals also rejected defendants’ attempts to pick apart plaintiffs’ calculations, reminding the parties that at this early stage in the litigation “plaintiffs will necessarily be limited to calculations based on publicly available data.” Finally, the Third Circuit said any differences in the particular details between this action and those of the Sweda and Mator cases were immaterial. “Instead, the lesson from Mator is that plaintiffs need to establish that the comparisons they provide are appropriate. We believe Plaintiffs here satisfied this requirement with factual allegations showing how peer plans were indeed similar.” For this reason, the district court’s order dismissing the complaint was reversed and the action was remanded for further proceedings.

Class Actions

Seventh Circuit

Holloway v. Kohler Co., No. 23-CV-1242-JPS, 2024 WL 3518644 (E.D. Wis. Jul. 24, 2024) (Judge J.P. Stadtmueller). Four participants of the Kohler Co. Pension Plan initiated this action both individually and on behalf of a putative class of similarly situated participants and beneficiaries receiving pension benefits in the form of a joint survivor annuity from the plan. Plaintiffs allege that the Kohler Co. and the pension plan are violating ERISA by using outdated mortality tables and actuarial assumptions to calculate joint and survivor annuity benefits, thereby miscalculating benefits which are not the actuarial equivalent of the single life annuity benefits offered under the plan. This April, the parties notified the court that they had reached a settlement. Plaintiffs subsequently moved for preliminary approval of class action settlement. In this decision the court granted the motion, conditionally certified the 500-member class, and preliminarily approved the parties’ proposed $2.45 million settlement agreement. Starting with the proposed non-opt out settlement class of participants and spouse beneficiaries receiving a joint and survivor annuity, the court agreed that “at this juncture, there is no barrier to conditional certification of the proposed class.” It also found the definition of the settlement class clear and based on objective criteria. Moreover, the court agreed with plaintiffs that the class satisfies Rule 23(a)’s numerosity, commonality, typicality, and adequacy requirements. The court was additionally persuaded that certification of the non-opt out class under Rule 23(b)(1) was appropriate as failure to certify the class would run the risk of individual claims resulting in contradictory and inconsistent rulings. Thus, the court found that certification will prevent differential treatment of class members by the plan. Accordingly, the court preliminarily certified the proposed class. Turning to the terms of the proposed settlement, the court concluded that it is “within the range of possible approval’ with respect to the criteria set forth in Rule 23(e)(2) and that the Court ‘will likely be able to…approve the proposal under Rule 23(e)(2).’” While stipulating that it was reserving full examination of the settlement until the final approval stage of the proceeding, the court stated that it generally agreed on first inspection that the settlement, representing approximately one-third of the damages calculated by plaintiffs’ actuarial expert, is a favorable result for the class, and noted that “Judge Lynn Adelman recently approved a similar settlement in a virtually identical case.” The court also completely held off considering the proposed award of attorneys’ fees and class representative awards. The decision concluded with instructions on sending notice to the class members and outlining the protocols for submitting objections at the fairness hearing.

Disability Benefit Claims

Eleventh Circuit

Sami v. The Guardian Life Ins. Co. of Am., No. 23-cv-20168-ALTMAN/Reid, 2024 WL 3495322 (S.D. Fla. Jul. 22, 2024) (Judge Roy K. Altman). Plaintiff Hari Sami brought this action to challenge The Guardian Life Insurance Company of America’s termination of his long-term disability benefits. Mr. Sami contends that Guardian’s decision was wrong on the merits. Mr. Sami also maintains that he did not receive a full and fair review of his appeal because Guardian failed to timely provide him with new evidence, including medical file review reports from two reviewing doctors and a vocational transferability of work skills report, and thus denied him “a reasonable opportunity to respond” to this information it relied upon in upholding its denial on appeal. In fact, Guardian provided this additional evidence to Mr. Sami on the very same day that it issued its final denial of his claim. Guardian’s handling of Mr. Sami’s administrative appeal was the central focus of this decision, ruling on the parties’ cross-motions for summary judgment on Mr. Sami’s Section 502(a)(1)(B) claim. To begin, the court clarified that Mr. Sami’s long-term disability benefit claim, originally filed on October 20, 2016, was “under the purview of the [Department of Labor’s] 2018 Amendment’s procedures.” As such, the court specified that Guardian was required to supply “any new or additional evidence considered, relied upon, or generated…in connection with the claim…sufficiently in advance” of the determination deadline to give the claimant the opportunity to engage and respond to that evidence. Here, the court was unequivocal that Guardian failed to do that and thus “unlawfully deprived Sami of ‘a full and fair review of his claim and adverse benefit determination.’” Before issuing its final ruling, the court engaged with Guardian’s three arguments advancing its view that the delay in furnishing the vocational and doctors’ reports was not improper. These three arguments were: (1) the reports were provided “as soon as possible” as required under the regulation because they were provided to Mr. Sami as soon as they were completed; (2) Mr. Sami should not be able to argue that Guardian deprived him of the opportunity to respond to the review because he denied its request for an extension of review-period deadline; and (3) even if its lateness in supplying Mr. Sami with the new evidence was a technical procedural violation, such a violation was de minimis. The court disagreed on all three points. First, it reminded Guardian that the statute mandates that new evidence be provided both as soon as possible and sufficiently in advance of the date of the final adverse benefit determination to give the claimant the opportunity to respond. In this instance, the evidence was not provided in advance at all. The court therefore concluded that Guardian did not meet its requirements under the regulation. Second, the court flatly rejected Guardian’s attempt to shift the blame for its untimely disclosure onto Mr. Sami, stating, “it was Guardian’s responsibility – not Sami’s – to ensure that the appeal was given a full and fair review within the prescribed period.”  It clarified that it would not “rewrite the regulation’s timing requirements to add an exception for claimants who consent to further delays.” Third, the court held that Guardian’s “technical procedural violation” argument was absurd and wrote that “[b]y definition, this failure deprived Sami of a full and fair review within the meaning of ERISA.” For these reasons, the court agreed with Mr. Sami that Guardian failed to conduct a full and fair review of his claim under ERISA and thus entered judgment in his favor and against Guardian. However, the court stressed that Guardian’s failure resulted in an incomplete administrative record, leaving it unable to rule at this juncture on the merits of Guardian’s decision to deny Mr. Sami’s claim. As a result, the court found that remanding to Guardian was the proper remedy under the circumstances. Finally, the court denied Mr. Sami’s request at this time for attorney’s fees under ERISA Section 502(g)(1), as it concluded that it would be inappropriate to award fees prior to Guardian’s review on remand. 

Discovery

Ninth Circuit

Truong v. KPC Healthcare, Inc., No. 8:23-cv-01384-SB-BFM, 2024 WL 3496865 (C.D. Cal. Jul. 17, 2024) (Magistrate Judge Brianna Fuller Mircheff). Plaintiff Sandra Truong moved to compel defendants to provide documents in response to her requests for production of documents in this employee stock ownership plan case. In Ms. Truong’s first motion, she requested the court order the KPC defendants to supplement their responses to provide documents reflecting internal discussions between committee members in response to Ms. Truong’s letters, as well as documents discussing the filing or anticipated filing of any Department of Labor Form 5500s. In her second motion, Ms. Truong sought production of engagement agreements between the plan and its trustee, defendant Alerus. The court granted both discovery motions, with the caveat that it did not agree with Ms. Truong that defendants had waived the ability to assert attorney-client privilege. However, the court agreed with Ms. Truong that the documents she seeks are relevant and proportional to the needs of the case and thus discoverable. To the extent that defendants wish to assert privilege, the court instructed that they have the burden of proving that privilege applies to each specific document or communication and that they must strictly follow the Ninth Circuit’s rules when producing the privilege log identifying the withheld documents. Finally, the court denied Ms. Truong’s motion for sanctions, holding that it did not find defendants’ conduct sanctionable.

Tenth Circuit

Phillips v. Boilermaker-Blacksmith Nat’l Pension Tr., No. 19-2402-TC-BGS, 2024 WL 3471333 (D. Kan. Jul. 19, 2024) (Magistrate Judge Brooks G. Severson). In this certified class action former boilermaker workers allege that the fiduciaries of a multi-employer defined benefit pension plan, the Boilermaker-Blacksmith Pension Trust, violated ERISA when they terminated early retirement benefits by employing a new manner of interpreting the plan language to implement an unwritten “90-day separation of service rule” which makes retirees ineligible for pension benefits when they engage in any postretirement work for employers who contribute to the plan within 90 days after retiring from their boilermaker jobs. The matter at issue here was plaintiffs’ motion to compel recordings of defendants’ phone calls with class members related to pension benefit administration discussing the 90-day rule. Despite using these recordings thirty times during depositions and attaching a transcript of one of the recordings to their answer, defendants objected to producing them and have stonewalled plaintiffs’ prior attempts at obtaining the calls. In response to plaintiffs’ motion, defendants argued that the phone calls are irrelevant, and that producing them would impose an undue burden that is disproportionate to the needs of the case. It is important to note, however, that each party’s absolutist views regarding the calls – plaintiffs’ insistence that they are entitled to them as part of the administrative record and defendants’ contention that they are wholly irrelevant – stand in stark contrast to a compromise the parties reached over production of the written call logs in late March/early April of this year wherein defendants agreed to produce the call logs for ten class members identified by plaintiffs, a total of 144 out of the 2,963 calls related to all 111 class members. In this decision ruling on plaintiffs’ discovery motion, the assigned magistrate judge decided the proper course of action was to hold the parties to what was already agreed upon and order defendants to produce the remaining 135 recordings requested in the initial sample of 144 (defendants previously produced 9 of the call logs in question). The magistrate ruled that the calls are unquestionably relevant and beneficial to plaintiffs’ action as they “readily bear on a central issue of Plaintiffs’ case…and Defendants, themselves, have used calls relating to Plaintiffs’ benefits administration on numerous prior occasions.” The court nevertheless determined that production of all 2,963 call logs would be unduly burdensome and time consuming, estimating production would take approximately 1,753 hours and cost as much as $740,750. Instead, the court viewed the compromise already reached as just and appropriate and therefore ordered production of the sampling as previously agreed upon. Plaintiffs’ motion to compel was thus granted in part to reflect this decision.

ERISA Preemption

First Circuit

Buiaroski v. State St. Corp., No. 1:23-cv-12241-JEK, 2024 WL 3509884 (D. Mass. Jul. 23, 2024) (Judge Julia E. Kobick). Plaintiff Debapriya Buiaroski was substituted as the plaintiff in this action after her husband, Robert Buiaroski, died. Ms. Buiaroski alleges that her husband’s former employer, State Street Corporation, and its severance plan violated ERISA and state law by failing to pay severance benefits and other forms of promised compensation following Mr. Buiaroski’s resignation from State Street. Defendants moved to dismiss the breach of contract claim on the grounds that it is preempted by ERISA. The court granted the motion to the extent the claim seeks to recover severance benefits under the plan, but concluded that the claim survives to the extent it seeks to recover the non-plan forms of compensation allegedly promised to Mr. Buiaroski. The court did not agree with defendants that the breach of contract claim seeking promised bonuses, compensation, and moving expenses functioned as an “end run around ERISA.” To the contrary, the court held that “such a claim is not an alternative enforcement mechanism to ERISA’s civil enforcement scheme,” but instead “concerns an independent legal duty allegedly created by the separate oral contract.” The court disagreed with defendants that the breach of contract claim will duplicate or supplant an ERISA claim, require interpreting the plan, or relate to the plan or plan administration in any way. Thus, the court permitted the breach of contract claim to proceed insofar as it seeks other forms of compensation not related to the ERISA-governed severance plan.

Fourth Circuit

Western Va. Reg’l Emergency Physicians v. Anthem Health Plans of Va., No. 3:23-cv-781, 2024 WL 3497920 (E.D. Va. Jul. 22, 2024) (Judge M. Hannah Lauck). Plaintiffs are a collection of ER staffing groups who are out-of-network with the Anthem Blue Cross defendants. They initiated their state law action in state court in Virginia. Prior to defendants’ removal of this action, the state court dismissed all but one of plaintiffs’ claims with prejudice. Only their claim for quantum meruit remains. In this count, plaintiffs assert that they are entitled to restitution for providing emergency medical services to patients insured with Anthem Blue Cross. Defendants removed the action, arguing the quantum meruit claim is completely preempted by ERISA. The ER groups moved to remand their action. Their motion to remand was granted in this decision. The court agreed with plaintiffs that their claim was not completely preempted because they lack both statutory and derivative standing to sue under ERISA Section 502(a), notwithstanding the fact that they are assignees of benefits of some ERISA-governed health plans, “because the ER Groups assert no claims based on those assignments. In fact, the ER Groups expressly disclaim them.” And because complete preemption requires plaintiffs to have standing to assert their claims, the court concluded that it need not analyze whether the claims fall within the scope of any provision of ERISA or whether the claim is capable of resolution without interpreting the terms of any ERISA-governed welfare plan. Accordingly, the court granted the motion to remand the action back to state court for further proceedings.

Pension Benefit Claims

Fifth Circuit

Pedersen v. Kinder Morgan Inc., No. 4:21-CV-03590, 2024 WL 3541583 (S.D. Tex. Jul. 25, 2024) (Judge Keith P. Ellison). This class action lawsuit concerns retirement plan changes affecting early and normal retirement pension benefits for the retirees of Kinder Morgan Inc. The plans, now known as the Kinder Morgan Retirement Plans A and B, have changed hands several times over the years through a series of corporate mergers and acquisitions. Various iterations of the plans were created through these series of corporate transactions over the decades. The parties’ dispute in this action concerns four separate features of the Kinder Morgan retirement plans: (1) the formula used to calculate benefit accrual of normal retirement benefits which plaintiffs contend violates ERISA’s prohibition on backloading benefit accruals; (2) an amendment ending the plan’s previous policy of granting early retirement eligibility to employees who turned 55 and completed five years of service, which plaintiffs maintain violates ERISA’s anti-cutback rule; (3) a plan provision that was interpreted to reduce monthly retirement benefits for participants who began working for the company before the age of 35; and (4) the plan’s chosen mortality tables and interest rate which plaintiffs contend violate ERISA’s actuarial equivalence requirement. Four motions were before the court. Plaintiffs moved for summary judgment. Defendants cross-moved for summary judgment and also moved to exclude the testimony of plaintiffs’ expert and for leave to file a sur-reply in opposition to plaintiffs’ summary judgment motion. In its decision the court granted in part and denied in part each party’s motion for summary judgment and denied defendants’ motions to exclude and for leave to file a sur-reply. Plaintiffs bring six causes of action under ERISA; (1) violation of ERISA’s anti-backloading provisions; (2) violation of ERISA’s anti-cutback provision for normal retirement benefits; (3) failure to provide participants with proper notice of plan changes as required by ERISA’s disclosure requirements; (4) impermissible elimination of early retirement benefits in violation of ERISA’s anti-cutback provision; (5) wrongful interpretation of plan provisions to deprive participants access to their accrued early retirement benefits; and (6) violation of ERISA’s actuarial equivalence requirement (count six was pled in the alternative to counts four and five). The court entered judgment in favor of defendants on counts one and two, dismissed count six without prejudice as moot, and entered judgment in favor of plaintiffs on counts three, four, and five. Before addressing the merits of the six claims, the court specified that claims one and five involve issues of plan interpretation subject to abuse of discretion review, while claims two, three, four, and six present questions of statutory interpretation reviewed de novo. Also, the court denied defendants’ motion to exclude the testimony of actuarial expert Michael L. Libman, a pension actuary with over forty years of experience and expertise on pension issues. The court stated it found Mr. Libman’s testimony reliable and helpful. With these preliminary matters addressed, the court transitioned to assessing the merits of the six claims. First, the court found that defendants’ interpretation of the plan provisions permitting the “projected Credited Service” figure to allow for it to exceed a 30-year maximum and concluding there is no limit on credited service projected to the normal retirement was not an abuse of discretion or a violation of ERISA’s anti-backloading rule, Section 204. The court ruled that the plan language was clear and that it could have imposed a 30-year limitation on the relevant provision, but did not. Therefore, the court concluded that the administrator’s determination was correct and that the plan complied with ERISA’s fractional rule. Next, the court disagreed with plaintiffs that defendants retroactively changed the plan’s formula to decrease any already-accrued benefits in violation of ERISA’s anti-cutback provision for normal retirement benefits. The court accordingly granted judgment in favor of defendants on counts one and two. However, the court agreed with plaintiffs that defendants failed to understandably disclose to participants how the fraction used to compute retirement benefits worked in the summary plan descriptions “to communicate to an average participant that employees hired before age 35 would not earn benefits equal to 2% of their average pay, as described in the normal retirement benefit formula.” It held that the SPD’s “lack of clarifying examples and illustrations has the effect of misleading participants.” The court also agreed with plaintiffs that defendants violated ERISA’s anti-cutback provision with regard to early retirement benefits and that the challenged plan amendments “unlawfully eliminated their ability to accumulate service that would make them eligible for early retirement benefits.” The court also interpreted the plan “such that Plaintiffs [are] entitled to unreduced benefits at age 62,” and thus concluded that defendants’ most recent interpretation of the plan holding otherwise amounts to an abuse of discretion. Thus, judgment was granted in favor of plaintiffs on these three causes of action. Finally, because the court granted plaintiffs’ motion for summary judgment as to claims four and five, it declined to address plaintiffs’ alternative arguments advanced under claim six and therefore dismissed this claim as moot. Complex ERISA cases have complex ends.

Ninth Circuit

Metaxas v. Gateway Bank F.S.B., No. 20-cv-01184-EMC, 2024 WL 3488247 (N.D. Cal. Jul. 18, 2024) (Judge Edward M. Chen). This action was filed in 2020, when plaintiff Poppi Metaxas challenged a denial of benefits under a supplemental executive retirement plan, a top-hat plan, following her disability-related retirement in 2013. Ms. Metaxas filed claims under ERISA Sections 502(a)(1)(B) and (a)(3). In August of 2022, the court granted summary judgment in favor of Ms. Metaxas on her claim for benefits and remanded to the plan’s administrative committee for reconsideration. In March 2023, the committee found that Ms. Metaxas was entitled to monthly benefits of $9,252.95 since the date of her retirement on May 1, 2013. Ms. Metaxas appealed this decision. She believes she is entitled to benefits of $19,626.16 per month as well as interest on back benefits. In addition, she maintains that she is entitled to statutory penalties for failure to produce plan documents and relevant claim information upon written request under Section 502(a)(1)(A), as well as equitable relief for breach of the duty of good faith under ERISA Section 502(a)(3). The court reopened the case this March and permitted Ms. Metaxas to file a supplemental complaint asserting these three claims. Defendant Gateway Bank moved to dismiss for failure to state a claim. Its motion was granted without prejudice. First, the court concluded that to state a claim for benefits alleging entitlement to higher benefits and interest Ms. Metaxas will need to include a statutory basis, ERISA provision, or Plan term that entitles her to these benefits. It therefore granted dismissal of the claim in part with leave to amend. Next, the court found that Ms. Metaxas failed to establish that the relief she seeks under Section 502(a)(3) is appropriate equitable relief against a non-fiduciary. In particular, the court stated that the additional monetary relief beyond the plan benefits amounts to an equitable surcharge against the bank to compensate her for financial losses resulting from its breach and “a claim for equitable surcharge lies only against a fiduciary.” Again, this claim was dismissed without prejudice and Ms. Metaxas was instructed “to provide additional cases that support her use of duty of good faith in contract law for top-hat plans under ERISA sufficient to support a claim for equitable relief as sought here.” Finally, the court identified two issues with the claim for failure to produce required documents. One, it agreed with the bank that it is not a proper defendant under section 502(c) because it is not the plan administrator. Two, it determined that Ms. Metaxas failed to allege which documents she requested and the specific ERISA provision that governs disclosure of those documents. Like Ms. Metaxas’ first two claims, this claim too was dismissed with leave to amend to address these deficiencies.

Plan Status

Tenth Circuit

Bessinger v. Cimarex Energy Co., No. 23-cv-00452-SH, 2024 3498489 (N.D. Okla. Jul. 22, 2024) (Magistrate Judge Susan E. Huntsman). Plaintiff Jay Bessinger commenced this lawsuit in state court after he was denied severance benefits he alleges he is due under the Cimarex Energy Co. Change in Control Severance Plan following a corporate merger and a relocation of his job from Tulsa, Oklahoma to Houston, Texas. Cimarex removed the action to federal court and then promptly moved to dismiss Mr. Bessinger’s two state law claims. In its motion Cimarex argued that the severance plan is governed by ERISA and that the state law claims seeking benefits under the plan are preempted by ERISA. Mr. Bessinger disputes that the benefit plan is governed by ERISA and maintains that the plan does not require ongoing administration. However, Mr. Bessinger did not dispute that the plan is a welfare benefit plan established and maintained by his employer that provides benefits to a class of beneficiaries with a source of financing and claims procedures in place. As Mr. Bessinger did not dispute these other elements of the plan, the court focused its discussion on whether the severance plan requires ongoing administration. It concluded that it does for several reasons. First, the court noted that benefits under the severance plan are triggered by at least two events, including first a change in control and second any number of secondary triggering events varying from person to person which could be a reduction in pay, change in position, termination without cause, or, as in Mr. Bessinger’s case, relocation of employment beyond a 50-mile radius. Next, the court highlighted that the severance plan benefits consist of both a lump-sum bonus payment and monthly compensation for up to 24 months, as well as an obligation that Cimarex provide medical, dental, vision, disability, and life insurance benefits. “The monthly payments contemplated by the Severance Plan – along with the provision of medical, dental, vision, disability, and life insurance benefits to participants and their dependents over a potential four-year period – is enough to indicate that an ongoing administrative scheme was necessary.” But there was more. The court also pointed out that the plan has an administrative regime in place, that it grants discretionary authority, and that it requires individual analysis of benefit claims for each employee applying for benefits, meaning the benefits are contingent in nature. Taken altogether, the court was confident that the severance plan had all of the hallmarks of an ongoing administrative scheme and therefore found the plan to be governed by ERISA. Finally, the court agreed with Cimarex that Mr. Bessinger’s state law claims seeking benefits under the severance plan were clearly preempted by ERISA. Accordingly, the court dismissed the state law causes of action. Nevertheless, the court freely granted Mr. Bessinger leave to amend his complaint to plead causes of action under ERISA.

Pleading Issues & Procedure

Third Circuit

Bennett v. Schnader Harrison Segal & Lewis LLP, No. 24-592, 2024 WL 3511618 (E.D. Pa. Jul. 22, 2024) (Judge John Milton Younge). Attorney Jo Bennett brings this action on behalf of herself and a putative class against the fiduciaries of her old law firm’s 401(k) plan alleging numerous violations of ERISA. Broadly, Ms. Bennett alleges that during a period of financial difficulty the law firm failed to remit withheld compensation to the plan, improperly commingled funds meant to be plan contributions with the firm’s general assets, and used these deferred funds for the firm’s own purposes during the dissolution of the firm. Ms. Bennett further alleges that even prior to this period of financial stress and eventual dissolution the law firm allowed the funds to remain commingled for unreasonably long periods of time, which was inconsistent with plan terms, and thereby deprived participants of the opportunity to earn greater interest. Ms. Bennett asserts claims under ERISA Sections 102, 404(a)(1)(A), 404(a)(1)(D), 404(a)(1), 406(b), 405(a), and 502(a)(3). Defendants moved to dismiss the action pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(b)(1). Their motion was denied in this order. The court concluded that Ms. Bennett’s complaint plausibly states claims for interrelated violations of ERISA and expressed that the legal sufficiency of these claims could only be appropriately “assessed following discovery.” It added that there are disputes of fact between the parties, including whether the contributions in question are employee or employer contributions, what knowledge and involvement each of the relevant parties had, what inconsistencies may exist between the plan, policies and practices the fiduciaries engaged in, and the extent and length of the commingled funds. Given these factual issues present in the case, the court stated that dismissal would be inappropriate. Finally, the court stated that defendants’ arguments related to Ms. Bennett’s standing in her class action claims are premature and clarified they will be addressed later at the class certification stage.

Tenth Circuit

Jamie C. v. Health Care Servs. Corp., No. 24-2229-JAR-GEB, 2024 WL 3511532 (D. Kan. Jul. 23, 2024) (Magistrate Judge Gwynne E. Birzer). This is an ERISA health care benefits dispute involving the denial of claims for the residential treatment of a minor suffering from mental health conditions. Plaintiff Jamie C., the mother of the minor, moved for leave to proceed anonymously. She argued that this case is of a highly sensitive and personal nature, involving the private mental health history of her son, and that proceeding under a pseudonym herself is the only way to protect his privacy and prevent further trauma for them both. The court agreed with plaintiff and granted her motion. In reaching this decision, the court stressed the need to protect the identity of a minor with a history of severe mental health problems including suicide attempts and drug addiction, which are both highly sensitive and personal issues. The court was sensitive to the need to protect the family from further trauma, particularly the child, and also recognized that the insurance company knows the identity of the family and will not be prejudiced in the defense of this case with the plaintiff proceeding under a pseudonym. Accordingly, the court exercised its discretion to allow Jamie C. to proceed anonymously.

Chavez v. Plan Benefit Servs., Inc., No. 22-50368, __ F.4th __, 2024 WL 3409147 (5th Cir. July 15, 2024) (Before Circuit Judges Wiener, Stewart, and Engelhardt)

This published opinion is the third by the Fifth Circuit in this class action challenging the imposition of excessive fees in the administration of ERISA-governed retirement and welfare benefit plans, with the potential of more to come.

The plaintiffs are Heriberto Chavez, Evangelina Escarcega, and Jorge Moreno, who were employees of the Training, Rehabilitation & Development Institute, Inc. (“TRDI”). TRDI contracted with defendants Plan Benefit Services, Fringe Insurance Benefits, and Fringe Benefit Group (collectively “FBG”) to set up various benefits for TRDI employees. TRDI distributed the benefits through FBG via two trusts, the Contractors and Employee Retirement Trust (“CERT”), which covers retirement plans, and the Contractors Plan Trust (“CPT”), which covers health and welfare benefits.

TRDI’s contract with FBG gave FBG significant control over how the trusts were operated and how benefits were paid. FBG was allowed to determine the fees deducted from CERT and direct “banks and other entities holding Trust funds to pay those fees, including to FBG itself.” Meanwhile, CPT authorized FBG to “calculate and deduct its own fees from employer contributions before remitting premium payments to the carriers.”

Plaintiffs contended that FBG abused this power by collecting excessive fees in violation of ERISA, such as charging an excessive base fee and charging different rates for identical services on top of that. They alleged examples in which FBG charged as much as 10-17%, depending on the benefit, which they contended was unreasonable.

FBG moved to dismiss, but its motion was denied. The district court also granted plaintiffs’ motion for class certification. In doing so, the court “encountered a question of first impression: whether Plaintiffs had standing to sue FBG on behalf of unnamed class members from different contribution plans.” The court ultimately concluded that plaintiffs had standing and certified a class.

FBG appealed and the Fifth Circuit reversed in a 2020 decision. It ruled that the district court did not engage in a sufficiently “rigorous analysis” necessary for certifying a class action and remanded. On remand, the court conducted a more thorough analysis and again granted plaintiffs’ class certification motion.

FBG again appealed. In August of last year, the Fifth Circuit affirmed this new decision in its entirety. (Your ERISA Watch covered this ruling as the case of the week in our August 16, 2023 edition.)

In that ruling, the Fifth Circuit tackled a thorny issue that often arises in class actions. As we wrote last August:

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.”

The Fifth Circuit punted on this issue, ultimately ruling that plaintiffs could proceed under either approach. It affirmed the class certification order and remanded.

But wait! FBG, backed by an amicus brief from the Chamber of Commerce, filed a motion for rehearing, which the Fifth Circuit granted. It withdrew the August 2023 decision and last week issued a new decision replacing it.

Would the Fifth Circuit bravely step forward and take this opportunity to decide which framework – the class certification approach or the standing approach – is correct? Sadly, the answer was no. On this issue the court’s new decision was identical to its old one, concluding that plaintiffs had standing under either approach.

However, the court whistled a different tune on the issue of class certification. It agreed with its previous ruling that plaintiffs satisfied Federal Rules of Civil Procedure 23(a) and 23(b)(3). Where it differed was on Rule 23(b)(1).

Rule 23(b)(1) allows for a class action when separate actions would create a risk of disposing of or impairing the claims, interests, or rights of absent class members. The essence of FBG’s argument on this point was that the “district court’s analysis completely fails to account for the central fact that this proposed class involves vastly different plans and fees.” FBG also argued that “the district court incorrectly assumed that an accounting for Plaintiffs’ claim would be dispositive in any way for any other plan members.”

Last August the Fifth Circuit dismissed these concerns, concluding that FBG’s pricing scheme was either “uniform or amenable to a pricing grid,” and that 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[.]” Thus, Rule 23(b)(1) was satisfied.

The Fifth Circuit changed its mind in its new ruling. The court concluded that “mandatory class status under Rule 23(b)(1) is inappropriate because this is primarily an action for damages and it is not evident that individual adjudications would substantially impair the interests of members not parties to the individual adjudications.”

The appellate court noted that even though plaintiffs sought equitable relief, that relief was in the form of disgorgement of “ill-gotten profits,” which was monetary in nature. Thus, “[t]he inclusion of claims for injunctive and declaratory relief does not change the nature of this action.” The “class claims are primarily for damages” and therefore Rule 23(b)(3) “is the appropriate vehicle for such class actions.”

Next, in an addition from last year’s ruling, the Fifth Circuit addressed the district court’s “cursory” Rule 23(c) analysis “to provide guidance on remand” because “in its certification order, the district court did not indicate that it had seriously considered the administration of the trial.”

Specifically, the appellate court ruled that the district court “failed to sufficiently address concerns regarding the variability of individualized damages in the suit.” The district court “abused its discretion” in “failing to adequately analyze and determine whether liability and damages should be bifurcated in certifying the class.”

The court further instructed the trial court to consider whether some of the distinctions alleged by FBG “could be handled via certification of specific issues or subclasses.” As for what procedures or mechanisms the district court could employ, the Fifth Circuit was agnostic: “We express no view on the district court’s ultimate decision whether to divide this large, complex litigation into smaller, more manageable pieces in light of today’s opinion, nor do we opine on the ultimate merits of the substantive claims.”

In short, the Fifth Circuit’s new decision backtracked slightly from its ruling last year, but in the end it arrived at a similar place. The plaintiffs’ class action remains certified, although narrowed in basis to Rule 23(b)(3) only. Furthermore, on remand the district court will have to dot its I’s and cross its T’s on the procedural details in order to avoid a third trip back to the Fifth Circuit.

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

Class Actions

First Circuit

Turner v. Liberty Mut. Ret. Benefit Plan, No. 20-11530-FDS, 2024 WL 3416070 (D. Mass. Jul. 15, 2024) (Judge F. Dennis Saylor IV). In 2008, Liberty Mutual Insurance Company acquired Safeco Insurance Company. Plaintiff Thomas Turner was an employee at Safeco. He first began working for the company in 1980 and continued working for the company after its acquisition by Liberty Mutual. Liberty Mutual promised transitioning employees that they would begin participating in its benefit programs and that the years they worked at Safeco would be counted towards their benefits. At issue in this putative class action is Liberty Mutual’s calculation of cost-share obligations for post-retirement medical benefits. Mr. Turner alleges that after the Safeco acquisition, he was advised repeatedly that his post-retirement healthcare cost-sharing credits would be calculated based on both his pre-merger years of employment at Safeco and his later years working for Liberty Mutual. Following two summary judgment decisions in 2022 and 2023, this issue over misrepresentations is the one remaining cause of action in Mr. Turner’s lawsuit. In this remaining claim, Mr. Turner seeks equitable relief under Section 502(a)(3) and asks the court “to reform the plan in accordance with representations Defendants made to Plaintiff and the Class and to provide complete credit for years they were employed by Safeco for purposes of benefits under the [Liberty Mutual Retirement Benefit Plan.]” He now seeks to certify a class of similarly situated employees under Rule 23. However, his motion to certify was denied without prejudice in this order. The problem for Mr. Turner was his class definition. Mr. Turner defined his class as: “Former grandfathered employees of Safeco corporation and subsidiaries transitioning to Liberty Mutual on January 1, 2009 who were not or will not be given both: (A) credit for purposes of eligibility and cost sharing for their grandfathered age and service points as of 12/31/2004 (their ‘Safeco Grandfathered Credit’) and (B) credited service for employment with Liberty Mutual (their ‘Liberty Mutual Credit.’).” To the court, this class definition is based in part on a claim that is not part of Mr. Turner’s complaint –that Safeco employees were denied benefits they earned under the Safeco plan prior to the Liberty Mutual acquisition, in addition to the benefits they earned under the Liberty Mutual plan. The Liberty Mutual defendants took issue with this too, and they characterized it as a workaround “that subtly, but critically, broadens the nature of the remaining claim at issue.” The court and defendants agreed that this “combined benefits” aspect of the proposed definition, where Mr. Turner appears to assert that he was denied benefits earned under both the Safeco plan and the Liberty Mutual plan, is not plaintiff’s heretofore theory of his case. Instead, Mr. Turner’s theory has always been that he was denied benefits he was owed under the Liberty Mutual plan based on his years of employment at both Safeco and Liberty Mutual. The court concluded therefore that certification of this proposed class encompassing the combined-benefit claim is impermissible. “Here, because the pleaded claim is founded on a broader range of allegedly unlawful conduct than that raised in plaintiff’s motion, the complaint did not provide adequate notice of the legal theory animating the proposed class definition.” Accordingly, the court denied the motion to certify this class, but stated that whether a class with a different definition more narrowly focused on Mr. Turner’s actual theory around the Liberty Mutual plan could be certified remained an open question and therefore denied the motion without prejudice.

Discovery

First Circuit

Germana v. Hartford Life & Accident Ins. Co., No. 3:23-cv-30065-MGM, 2024 WL 3416026 (D. Mass. Jul. 15, 2024) (Magistrate Judge Katherine A. Robertson). Plaintiff Scott Germana brings this action against Hartford Life and Accident Insurance Company seeking to recover long-term disability benefits under ERISA. Presently before the court was a motion for discovery filed by Mr. Germana requesting a one-hour Rule 30(b)(6) deposition of Hartford, along with certain written discovery mainly regarding Hartford’s policy of not considering documents submitted after the date when it determines the record is closed, as well as its practice of relying on medical opinions of physicians not licensed to practice medicine in the state of Massachusetts. Mr. Germana maintains that the discovery he seeks will show procedural irregularities and will speak to Hartford’s bias. He argued that he is entitled to this limited discovery in order to bolster his arguments in favor of reversing the termination of benefits. The court did not agree, and in this decision denied Mr. Germana’s discovery motion. The court was not persuaded that Mr. Germana had presented convincing evidence of implicit bias or anything other than bare allegations of a structural conflict of interest to warrant deviating from the presumption against discovery in ERISA benefit denial cases such as this one. It broadly rejected Mr. Germana’s argument that Hartford’s policy of refusing to credit materials once it has closed the claims record prevents a full and fair review under ERISA. Mr. Germana’s assertions, the court stated, were in direct conflict with First Circuit holdings where “the final administrative decision acts as a temporal cut off point.” As a result, the court concluded that evidence arising beyond the final administrative decision is inadmissible, and stated that it would not add these documents into the administrative record. In addition, the court stressed it could find no case law supporting Mr. Germana’s proposition that an insurance company is required to have doctors licensed in a claimant’s state review the claimant’s medical records. Accordingly, the court declined to open up discovery on this basis. The rest of Mr. Germana’s remaining rationales for discovery were also rejected by the court, including his arguments that defendant failed to consider the cognitive effects of his disability and that Hartford did not offer a plausible explanation for disregarding the Social Security Administration’s finding of disability. The court summed up its views as follows: “[t]he bald fact that Defendant made an adverse benefits determination is not evidence of bias or unfair claims processing… If it were, almost every plaintiff in an ERISA benefit denial case would be entitled to discovery, and the First Circuit has made clear that discovery is the exception not the rule.” Mr. Germana was therefore not permitted to take the limited discovery he requested or add any documents to the administrative record.

Disability Benefit Claims

Eighth Circuit

Covill v. Unum Life Ins. Co. of Am., No. 23-cv-19-LTS-MAR, 2024 WL 3443916 (N.D. Iowa Jul. 16, 2024) (Magistrate Judge Mark A. Roberts). Plaintiff Kendra Covill stopped working as a dental hygienist in 2019 after the onset of randomly occurring but severe pelvic and gynecological pain. To treat her symptoms Ms. Covill underwent several surgeries in August and September of 2019, including a hysterectomy. Nevertheless, the pain persisted, prompting Ms. Covill to submit a claim for long-term disability benefits under an ERISA-governed policy insured by defendant Unum Life Insurance Company of America. Unum denied Ms. Covill’s claim, concluding that Ms. Covill exaggerated the severity of her pain and that her complaints of ongoing chronic pain were of “unclear etiology.” In this action, Ms. Covill challenges Unum’s denial of benefits. She argued that Unum’s decision was arbitrary and capricious as it was based primarily on a lack of a documented single unifying diagnosis accounting for the pain. Ms. Covill contends that “reliance on her subjective severe pain reports, her exam records documenting severe pain, and the intensive therapy she received confirm the severity of her pain reports,” making Unum’s decision to deny her claim for benefits unreasonable. Further, Ms. Covill maintained that Unum improperly rejected her treating OBGYN’s assessment of her functional limitations, including her doctor’s position that her pain was at times so severe that it is “not safe to work on patients while using sharp instruments in their mouths.” Finally, Ms. Covill asserted that Unum wrongfully discredited her vocational consultant’s report and instead imposed its own definition of “light work” to include frequent sitting, which she contends is inconsistent with both the definitions under the Dictionary of Occupational Titles (“DOT”) and the Enhanced Dictionary of Occupational Titles (“eDOT”). It was this last argument which proved most persuasive to Magistrate Judge Mark Roberts, who issued this report and recommendation taking issue with Unum’s definition of “light work.” The Magistrate recommended that the court remand the matter to Unum for further consideration and development on issues related to this definition, “including whether such designation includes frequent sitting, and to further address why and how the eDOT definition applies to Covill.” The Magistrate’s report noted that Unum did not meaningfully address this subject in its briefing and failed to supply the eDOT’s definition of  “light work” as it pertains to sitting requirements. Without this critical information, the Magistrate believed that the court could not adequately review Unum’s decision. The report also questioned the fact that Unum’s vocational rehabilitation consultant deferred any restrictions and limitations to the reviewing physician, stating, “[a]t best, it is difficult to understand how a vocational consultant can provide an accurate opinion without knowing the claimant’s functional restrictions.” Finally, the Magistrate recognized that Unum has a conflict of interest as it is both decision-maker and insurer. For these reasons, the report stated that remanding to Unum for further development of the record “is appropriate and necessary” and therefore recommended this course of action.

Wessberg v. Unum Life Ins. Co. of Am., No. 22-94 (JRT/DLM), 2024 WL 3444044 (D. Minn. Jul. 15, 2024) (Judge John R. Tunheim). Plaintiff Ann Wessberg became disabled following a diagnosis of bilateral invasive breast cancer in late 2018, at which time she stopped working as an attorney and began cancer treatments including radiation, chemotherapy, and surgeries. In March of 2019 Unum Life Insurance Company of America approved Ms. Wessberg’s claim for long-term disability benefits. Unum continued paying monthly benefits until July 2020, when it terminated benefits, after Ms. Wessberg’s treating oncologist attested that she had improved. In this ERISA action, Ms. Wessberg challenges Unum’s decision, alleging that the insurer improperly terminated benefits and seeking a court order reinstating her long-term disability benefits. In this decision the court issued its ruling under de novo standard of review on the parties’ cross-motions for judgment pursuant to Rule 52. It found that Unum improperly terminated Ms. Wessberg’s benefits and ordered it to pay back benefits, reinstate benefits and resume paying ongoing benefits, and pay Ms. Wessberg reasonable attorneys’ fees, costs, and pre-judgment interest. The decision highlighted several flaws with Unum’s denial of benefits. First, the court expressed that it was an error for Unum to focus overwhelmingly on the physical demands of Ms. Wessberg’s work as an attorney, and not consider the cognitive demands of the job. As evidence of this, the court pointed out that the occupation description Unum provided to Ms. Wessberg’s treating doctors “completely omitted cognitive demands.” Moreover, the court stated that Unum’s failure to consider Ms. Wessberg’s cognitive impairment was not due to Ms. Wessberg failing to submit evidence supporting her assertion of a cognitive disability. “For instance, in March 2019 Wessberg reported to her oncology provider that she was experiencing vertigo/dizziness and fatigue. In May 2019 she reported to her mental health provider that she struggled with concentration and memory, was fatigued and tired, and had decreased stamina.” The court concluded that its own careful review of the entire medical record demonstrated Ms. Wessberg was experiencing disabling cognitive symptoms, including fatigue, dizziness, concentration issues, and fainting, which prevented her from performing the essential duties of her career, and that “Unum, did not present any evidence contradicting Wessberg’s symptoms.” In fact, all of Ms. Wessberg’s treating providers stated they believed she was credible and could not resume full time work. In addition, the court noted that Unum neither required Ms. Wessberg to submit to an independent medical evaluation nor referred her for any cognitive testing, despite the Policy allowing it to do so. Meanwhile, the court reasoned that it would not defer to Unum’s reviewing physicians, as neither of the two doctors “had treated a patient in more than a decade,” other courts have found them not credible, and neither doctor “specializes in oncology or cognitive disabilities.” Finally, the court stated it was improper for Unum to state that Ms. Wessberg failed to corroborate her disabling symptoms with abnormal test results because it rejected her attempts to submit such test results after the date when it terminated benefits. In sum, the court said, “Unum had a duty to engage with Wessberg’s evidence and make an adequate determination of whether Wessberg was disabled; its failure to do so was erroneous.” For these reasons, the court concluded Unum wrongfully terminated Ms. Wessberg’s benefits, reinstated them, awarded her payment of back benefits, interest, and attorneys’ fees, and entered judgment in her favor.

Life Insurance & AD&D Benefit Claims

Fifth Circuit

Edwards v. Guardian Life Ins. of Am., No. 1:22-CV-145-KHJ-MTP, 2024 WL 3404606 (N.D. Miss. Jul. 12, 2024) (Judge Kristi H. Johnson). Plaintiff James Emmett Edwards brought this action against Guardian Life Insurance of America seeking to recover life insurance benefits following the death of his wife. Mrs. Edwards was the owner-operator of a hair salon in Mississippi. In 2007, Guardian issued the salon a group life insurance policy. One of the terms of the policy granted Guardian the right to cancel the plan if “less than two employees are insured.” In 2019, Mrs. Edwards was diagnosed with cancer. By November of 2019, Mrs. Edwards became the only participating employee under the group plan. She nevertheless continued to maintain the plan and pay monthly premiums. Before the policy was eligible for cancellation, the COVID-19 pandemic occurred, at which time Guardian suspended its practice of terminating plans that had dropped to one participant. Its suspension practice ended in October of 2021, at which time Guardian mailed a letter to Mrs. Edwards informing her that the salon’s group life insurance policy was being cancelled effective January 15, 2022 because of low participation. After the policy was cancelled Guardian received no additional premium payments. Then, on May 27, 2022, Mrs. Edwards died from complications of her cancer. Mr. Edwards’ claim for proceeds under the policy was denied by Guardian, prompting this litigation. The only remaining claim in Mr. Edwards’ action is a claim for recovery of plan benefits under ERISA Section 502(a)(1)(B). Guardian moved for summary judgment on the benefits claim. Its motion was granted in this decision. The court concluded that there was no genuine dispute of material fact that Guardian had the authority to cancel the policy and that it did so before Mrs. Edwards died and before Mr. Edwards made a claim under the policy. “Without a plan in existence,” the court stated, “Edwards ‘has no claim for benefits under the plan.’” The court rejected both of Mr. Edwards’ arguments for why he remained entitled to benefits even after Guardian cancelled the policy – that Guardian (1) waived its right to cancel, and (2) failed to provide proper notice to Mrs. Edwards or give her the right to convert the policy. The court addressed waiver first. It distinguished a Fifth Circuit case where the court of appeals found an insurer had waived its right to terminate a group health insurance policy when the participation levels dropped because in that instance the insurer had tried to cancel the policy after an employee filed a claim for healthcare benefits. The court stated that those circumstances were fundamentally different because Guardian canceled the policy at issue here months before Mrs. Edwards died. “When confronted with a similar issue…the Fifth Circuit rejected the plaintiff’s ‘attempt to expand the scope of its waiver analysis to include the defendants’ actions made before the plaintiff…made a claim for benefits.’” Turning to the issue of notice, the court stated that there was no genuine issue that Guardian had mailed a cancellation notice to Mrs. Edwards. “Indeed, the record overwhelmingly supports a presumption that Guardian mailed the cancellation notice.” Accordingly, the court affirmed Guardian’s denial of Mr. Edwards’ claim for benefits and entered judgment in its favor.

Pension Benefit Claims

Ninth Circuit

Rodriguez v. Profit Sharing Plan II Admin. Comm., No. 23-CV-2236 JLS (JLB), 2024 WL 3447521 (S.D. Cal. Jul. 17, 2024) (Judge Janis L. Sammartino). Two former employees of a tractor company, Torrence’s Farm Implements, accuse the administrative committee and two individual committee members of the Torrence’s Farm Implements Profit Sharing Plan II of failing to comply with ERISA. Specifically, plaintiffs allege in counts one and two that defendants violated Section 1025 by failing to provide automatic annual pension benefit statements and by failing to provide profit sharing account statements upon written request. In addition, plaintiffs assert a claim under Section 1133 based on defendants’ failure to provide a written decision responding to a claim submitted by one of the plaintiffs to obtain a loan under the plan. They seek statutory penalties on claims one and two, review of claim three’s loan request, and requested all benefits due, as well as attorneys’ fees and costs. Defendants moved to dismiss the claims for failure to provide requested documents and for failure to respond to a request for benefits. Defendants argued that the second cause of action was untimely, that it improperly relied on requests made by third-party attorneys, that it is duplicative of count one, and that it impermissibly targets individual committee members who are not the named plan administrator. Regarding plaintiffs’ third claim, defendants argued that Section 1133 does not contain a private right of action, the claim should be dismissed for failure to exhaust administrative remedies, and a loan request does not qualify for a claim for benefits under ERISA. The court addressed defendants’ arguments and ultimately granted the motion to dismiss count two and denied the motion to dismiss count three. First, the court agreed with defendants that claims based on requests made more than three years before the action was filed were untimely. However, the court declined to dismiss claims stemming from later requests for information, even though they were associated with the earlier requests, seeing “little reason to immunize a plan administrator from its continuing statutory obligation merely because it neglected that obligation in the past.” Nevertheless, the court dismissed count two “because it relies on a theory belied by the relevant statutory language,” i.e, that plan administrators are required to provide pension benefit statements whenever requested. Under the language of the statute, the court concluded that plan participants are only entitled “to a pension benefit statement once annually,” not whenever they request one. Thus, the court dismissed the second cause of action for failure to state a claim. The court also agreed with defendants that the individual committee members could not be held liable under Section 1132(c), but declined to dismiss the individual defendants from the action because the third cause of action pursuant to Section 1132(a)(3) does not limit liability to administrators. The remainder of defendants’ arguments were far less successful. The court denied the motion to dismiss the improper denial of benefits claim. It found that plaintiffs may sue to require defendants to comply with the requirements of Section 1133, that plaintiffs were not required to exhaust administrative remedies, and that a loan may be a benefit under ERISA and the complaint plausibly alleges the plan provides for loans. Finally, the court specified that its dismissal of count two was without prejudice should plaintiffs believe they can amend their complaint to state a claim.

Pleading Issues & Procedure

Fifth Circuit

Utah v. Su, No. 23-11097, __ F. 4th __, 2024 WL 3451820 (5th Cir. Jul. 18, 2024) (Before Circuit Judges Haynes, Willett, and Oldham). The administrations of Presidents Donald Trump and Joe Biden were obviously very different. Among the countless examples of this is the difference between the Trump-era 2020 “Financial Factors in Selecting Plan Investments” regulation which forbade ERISA fiduciaries from considering “non-pecuniary” environmental social and governance factors in their investment selections, and the 2022 Biden-era Department of Labor (“DOL”) “Investment Duties” rule permitting ERISA fiduciaries to consider “the economic effects of climate change and other environmental, social, or governance factors” among competing investment options so long as the potential investment choices they are selecting from “equally serve the financial interests of the plan.” These flip-flopping regulations under the two administrations are at the center of this litigation brought by 26 States, private interest parties, and trade associations challenging the 2022 Department of Labor Biden-era rule under the Administrative Procedure Act (“APA”) and ERISA. Your ERISA Watch covered the district court’s decision in this case as our notable decision the week of October 4, 2023. In that decision the district court dismissed plaintiffs’ challenge by deferring to the DOL’s interpretation of ERISA pursuant to the Supreme Court’s guidance in Chevron v. NRDC and concluded that the DOL’s 2022 Rule was not “manifestly contrary to the statute.” But keen court followers are surely aware that things have since changed. The Supreme Court made headlines this term by overturning Chevron and paring back federal agencies’ freedom to interpret statutes in its landmark decision in Loper Bright Enterprises v. Raimondo. As a result of “the upended legal landscape,” the Fifth Circuit vacated and remanded the district court’s ruling from last September so that the lower court “can reassess the merits.” The Fifth Circuit took multiple opportunities to state that appellate courts such as itself are “courts of review, not first view,” and relied on this principle to decline to answer any “legal question in the first instance,” especially because the disputed issue here is “one of national significance.” Instead, the court of appeals concluded that the prudent course of action is to follow the “[o]orderly observation of the appellate process” to allow the lower court to interpret the law and issue its reasoned judgment to address the important statutory issue before it and answer the question of whether ERISA allows its fiduciaries to consider factors that are not first and foremost centered on financial performance. Thus, the Fifth Circuit instructed the district court to answer whether the DOL’s 2022 “rule can be squared with either ERISA or the APA,” and stated that when the time comes this same Fifth Circuit panel, “already acquainted with the briefs and arguments of counsel,” can once again weigh in. For now it will be up to the district court to reconsider plaintiffs’ challenge in light of Loper Bright.

Sixth Circuit

Oliver-Smith v. Lincoln Nat’l Ins. Co., No. 1:23-cv-276, 2024 WL 3443004 (S.D. Ohio Jul. 17, 2024) (Judge Jeffery P. Hopkins). The parties jointly moved to file the entire administrative record under seal in this ERISA long-term disability benefits dispute. The parties argued that the administrative record contains sensitive medical and financial information that would subject the plaintiff “to potential harm, embarrassment, or humiliation,” and that sealing the whole of the record makes sense given that it is “replete with sensitive information” and “redaction would present a high risk of inadvertent disclosure of confidential information, would be extremely time consuming and burdensome, and would leave little of value to the public’s interest.” Finally, the parties reasoned that the public would still have access to all pleadings, briefs, and court decisions throughout the litigation which would mitigate the public’s lack of access to the documents within the administrative record itself. The court was persuaded by these arguments and granted the motion to file the administrative record under seal. It expressed that filing the record under seal was justifiable given the strong federal and state policies in favor of protecting private health information, which it agreed outweighs the public’s interest in accessing these records and documents. In sum, the court wrote that although “the parties seek to file the entire Administrative Record under seal, the circumstances demonstrate that the request is in fact no broader than necessary.”

Provider Claims

Third Circuit

Samra Plastic & Reconstructive Surgery v. Cigna Health & Life Ins. Co., No. 23-22521 (MAS) (TJB), 2024 WL 3444273 (D.N.J. Jul. 17, 2024) (Judge Michael A. Shipp). Plaintiff Samra Plastic and Reconstructive Surgery is an out-of-network provider with Cigna Health & Life Insurance Company. In this action, Samra seeks payment of 70% of its billed charges for complex reconstructive breast surgery it provided to a patient insured under an ERISA plan covered by Cigna. Samra asserts seven causes of action. The first three are state law claims for breach of contract, promissory estoppel, and account stated, and the last four are ERISA claims for benefits, failure to establish a summary plan description, failure to establish and maintain claims procedures, and fiduciary breach. Cigna moved to dismiss the action. Its motion was granted in part and denied in part in this order. The court began its analysis with the ERISA claims. First, the court discussed standing. As the plan at issue here contains an unambiguous anti-assignment provision, the court agreed with Cigna that Samra lacks derivative standing under ERISA to assert claims through an assignment of benefits. Nevertheless, Samra contends that it may maintain its ERISA claims through a valid power of attorney conveyed to it from the patient. The court noted, however, that Samra only raised the issue of the power of attorney in its opposition brief and that the complaint was silent on the facts establishing the validity of the power of attorney. It therefore stated that it would not consider these factual allegations which were absent from the complaint and thus granted the motion to dismiss the ERISA claims asserted on the patient’s behalf. The court dismissed the failure to establish and maintain reasonable claims procedure claim with prejudice, but otherwise dismissed the ERISA causes of action without prejudice. Next, the court addressed Cigna’s preemption arguments. It was Cigna’s contention that the three state law claims were preempted by ERISA Sections 502(a) and 514. The court disagreed. With regard to complete preemption under Section 502(a), the court stated, “in the absence of a valid assignment of benefits or power of attorney, as outlined above, Samra cannot bring a claim for benefits under § 502(a) and thus its state law claims are not preempted by § 502(a).” In addition, the court determined that the state law claims fell outside the scope of ERISA’s express preemption provision, Section 514, as they “arose precisely because there was no coverage under the plans for services performed by an out-of-network provider,” and absent the separate agreement between the parties there was no obligation for Samra to provide healthcare or for Cigna to pay for the services. Thus, the court agreed with Samra that the plan was not a critical factor in establishing liability, and the breach of contract, promissory estoppel, and account stated claims were not found to be preempted by ERISA. Finally, the court denied the motion to dismiss the three state law claims, concluding that the complaint’s allegations were sufficient to allege all three under Rule 8 pleading.

Remedies

Tenth Circuit

Ian C. v. United HealthCare Ins., No. 2:19-cv-474-HCN, 2024 WL 3415890 (D. Utah Jul. 15, 2024) (Judge Howard C. Nielson, Jr.). On December 5, 2023, the Tenth Circuit reversed and remanded the district court’s entry of summary judgment in favor of defendant United HealthCare in this medical benefits action involving the residential mental health and substance use treatment of a minor. In that decision (which Your ERISA Watch featured as our case of the week on December 13, 2023) the Tenth Circuit determined that United had arbitrarily and capriciously denied the benefits because it failed to explicitly address plaintiff A.C.’s substance use disorder during the claim administrator and appeals process. The question before the court on remand here was whether to award benefits or to remand the case to the plan administrator for renewed evaluation of the claim. In this instance, as per usual, the court determined that the appropriate remedy was remanding to United given its flawed handling of the claim and its failure to consider addiction as an independent ground for coverage in its denial letters. The court stated that awarding benefits in ERISA actions is only proper where there is “no evidence in the record to support the administrator’s” denial of benefits or under limited circumstances where the insurance company engaged in “clear and repeated procedural errors” when it denied the claim. The court stated that neither circumstance applied here. It stressed that the administrative and medical records contain “evidence that both supports and undermines the conclusion that A.C. no longer qualified for benefits under the Substance-Related Guidelines.” Moreover, the court was unconvinced that the record here reflected “anything like the repeated, clear, and egregious procedural errors that justified the award of benefits in D.K.” Under these circumstances, the court ruled that remand was the only appropriate remedy.

Statute of Limitations

Fifth Circuit

Bailey v. United Healthcare Ins. Co., No. 4:22-CV-02733, 2024 WL 3418003 (S.D. Tex. Jul. 15, 2024) (Judge Kenneth M. Hoyt). Plaintiffs Keith Lemon and Dr. Jason Bailey sued United Healthcare Insurance Company under ERISA seeking greater reimbursement for surgery Dr. Bailey performed on Mr. Lemon under the terms of a health insurance policy. The parties filed cross-motions for summary judgment. Important for the present discussion was the timing of plaintiffs’ lawsuit. United issued its final adverse decision on April 26, 2019. This action was brought on June 29, 2022, over three years later. According to the terms of the policy’s limitations provision, legal actions against United must be brought “after the 61st day of written proof of loss is filed or within three years of the date we notified you of our final decision on your appeal or you lose any rights to bring such an action against us.” United thus argued that plaintiffs’ action was time-barred. The court agreed. To begin, the court stated that plaintiffs could not use Section 1132(c)(1) to toll the plan’s limitations period based on an argument that United failed to produce plan documents upon request. The court was not convinced that plaintiffs diligently pursued their rights as required for equitable tolling to apply. Rather, the court found that United presented a compelling excuse for not providing the documents directly to the healthcare provider, while it could not say that plaintiffs did their best to respond to United’s arguments regarding the medical provider authorization form. Next, plaintiffs argued that Untied violated ERISA by failing to disclose the limitations period. The court, however, read 29 C.F.R. § 2560.503-1(g)(1)(iv) differently. “While the statute explicitly requires that UHIC describe the time limits applicable to the plan’s procedures, it is silent regarding the time limits to bring a civil action. Thus, the Court determines that no disclosure is required.” Finally, the court rejected plaintiffs’ preferred reading of the contractual text. Plaintiffs maintained that the use of the word “or” instead of the word “and” permits them to file suit either after the 61st day of written proof of loss is filed or within three years of the final adverse decision on appeal. But the court did not agree that the word or is “always disjunctive.” In fact, in this instance, the court stated that the better reading of the limitations provision was to understand or as having an inclusive sense. The court viewed plaintiffs’ preferred reading as leading to an absurd result. “The absurdity of the plaintiffs’ interpretation is straightforward: the limitations provision would leave the plaintiff free to sue UHIC in perpetuity, providing no limitation at all.” Unlike plaintiffs’ interpretation, the court viewed United’s interpretation requiring plaintiffs to sue within three years of its final appeal decision as logical, in line with ordinary rules of contract interpretation, and unambiguously making sense. For these reasons, the court found that plaintiffs’ claims are time-barred under the contractual limitations period and entered summary judgment in favor of United without reaching the parties’ arguments on the merits.

Venue

Seventh Circuit

Cline v. The Prudential Ins. Co. of Am., No. 23-cv-15091, 2024 WL 3455089 (N.D. Ill. Jul. 18, 2024) (Judge Sharon Johnson Coleman). Defendant Prudential Insurance Company of America moved to transfer venue in this long-term disability benefit action filed by plaintiff Donald Cline. The parties do not dispute that venue is proper in both the Northern District of Illinois, the venue Mr. Cline chose, and the Middle District of Tennessee, where Prudential seeks to move the action. Instead, the parties disputed whether transferring the case was in the interest of justice and which venue was more convenient. Mr. Cline argued that his choice of forum should be given substantial deference. However, the court agreed with Prudential that Mr. Cline’s venue choice should be given little deference because Mr. Cline lives in the proposed transfer district. In addition, the court found that other private and public factors weighed in favor of transferring venue. The court highlighted the fact that the events occurred in the Middle District of Tennessee where Mr. Cline applied for and received his denial of benefits. Given this, the court was receptive to Prudential’s argument that there will be relative ease and convenience favoring the parties in Tennessee, where Mr. Cline lives, worked, and received medical treatment. On the other hand, the court was not convinced that, as Mr. Cline suggested, this case will be tried on the administrative record without discovery, document production, or witnesses. Instead, it stated that neither party can know for certain “what the outcome of the case will be.” Considering “the desirability of resolving controversies in their locale,” the court concluded that there are significant enough connections between this case and the Middle District of Tennessee to warrant transfer. Thus, Prudential’s motion to transfer was granted.

Smith v. UnitedHealth Grp., No. 23-2369, __ F. 4th __, 2024 WL 3321646 (8th Cir. Jul. 8, 2024) (Before Circuit Judges Colloton, Erickson, and Kobes)

Cross-plan offsetting is a controversial practice – sometimes referred to as “self-help” for third-party administrators of healthcare plans and, alternatively, “robbing Peter to pay Paul” – to which plan participants, healthcare providers, and the Department of Labor alike have objected. It is in the spotlight this week in an Eighth Circuit decision giving the green light to UnitedHealth Group Inc. (“United”) to utilize this practice, at least where it is expressly contemplated by the plan.

According to the Eighth Circuit, United administers both fully insured healthcare plans and self-funded plans and utilizes cross-plan offsetting with respect to both types of plans to recoup claimed overpayments to medical providers. It does so by offsetting the amount due to that provider after a participant in any United-administered healthcare plan obtains services from that medical provider. In other words, if United later decides that it as overpaid a provider with respect to medical benefits for a participant in Plan A, it reduces the amount it pays that provider for medical services to a participant in Plan B.  

Plaintiffs Rebecca Smith and Cristine Ghanim were participants in two separate self-funded healthcare plans, each of which had provisions in the governing summary plan description expressly permitting United to recoup overpayments through cross-plan offsets and delegating to United discretion in deciding how to implement cross-plan offsets. After both plaintiffs underwent medical procedures covered under their plans, United decreased the amount it paid to the providers for these procedures by several thousand dollars, claiming that it had previously overpaid these providers for services to other participants in other plans. Ms. Smith and Ms. Ghanim claimed they were liable to their providers for the unpaid amounts and that decreasing the amount it paid to their providers benefited United in a direct financial sense. They brought suit claiming that United violated its duties of prudence and loyalty as an ERISA fiduciary through these cross-plan offsets.    

The district court determined that neither plaintiff had suffered a concrete injury from the cross-plan offsets, and that both therefore lacked constitutional standing to assert the ERISA fiduciary breach claims. The Eighth Circuit agreed in a decision as short as it is hard to follow.

Citing an earlier Eighth Circuit decision, Mitchell v. Blue Cross Blue Shield of North Dakota, 953 F.3d 529 (8th Cir. 2020), Ms. Smith and Ms. Ghanim asserted that they suffered a similar concrete injury. In Mitchell, the Eighth Circuit held that healthcare plan participants had a constitutionally-cognizable injury when their providers were underpaid plan benefits to which the participants were contractually entitled regardless of whether the healthcare provider charges the participants for the balance of the bill. The court, however, found Mitchell distinguishable because unlike the plaintiffs in Mitchell, Ms. Smith and Ms. Ghanim “do not allege a breach of contract as they are not contractually entitled to having a payment of approved benefits be made in cash.” To the contrary, according to the court, Ms. Smith and Ms. Ghanim “recognize that their plans explicitly delegate to United the discretion to implement cross-plan offsetting.”

The court similarly distinguished Carlsen v. GameStop, Inc., 833 F.3d 903 (8th Cir. 2016), reasoning that “in that case there was a breach of contract while the plans here specifically allow for cross-plan offsetting.” In the court’s view, the plaintiffs’ claim that the plan language must be read consistently with ERISA asserted only a statutory claim and not a breach of contract and, as such, was not sufficient to establish an injury for Article III purposes.

Finally, the court rejected the plaintiffs’ argument that their liability to their providers for the unpaid balance of their bills constituted a sufficient injury for Article III purposes. In the court’s view, plaintiffs’ asserted liability amounted to a mere risk of future harm. Because the injunctive relief plaintiffs sought against United would not prevent the medical providers from collecting on their unpaid debts, the Eighth Circuit held that this claimed basis for constitutional standing also failed.    

Breach of Fiduciary Duty

Eighth Circuit

Shipp v. Cent. States Mfg., No. 5:23-CV-5215, 2024 WL 3316303 (W.D. Ark. Jul. 5, 2024) (Judge Timothy L. Brooks). Three retired employees of Central States Manufacturing who participate in the company’s Employee Stock Ownership Plan (ESOP) accuse the company, its board of directors, and GreatBanc Trust Company of breaching their fiduciary duties owed to the plan and its participants under ERISA in this putative class action lawsuit. Plaintiffs allege that defendants conducted two transactions that collectively negatively impacted the value of their ESOP shares. The first event occurred in August 2020, when Central States took out a bank loan for $40 million, which it then spent to redeem 2.2 million shares of company stock owned by retired ESOP participants. Instead of retiring these shares after redeeming them, the company placed them back into circulation to fund future contributions to employee retirement accounts. In December 2020, the company conveyed the 2.2 million redeemed shares to the ESOP in exchange for the plan issuing the company a promissory note of $40 million to be repaid over 30 years. These shares received by the ESOP were then retained in a suspense account and would gradually be released and made available for the ESOP retirement accounts as the loan was repaid overtime. Plaintiffs allege that this second transaction significantly diluted and diminished the value of the plan’s existing stock and saddled the plan with unnecessary debt, causing major financial harm. Central States justifies these transactions by arguing that they were done because of legitimate business concerns over “a looming financial crisis” from the payoff process to retirees which they projected could create a cashflow problem for the company or even cause it to go into bankruptcy. Central States argued that under Eight Circuit precedent a company need not make normal business decisions in the interest of plan participants even when those decisions have a collateral effect on employee benefits. Plaintiffs, however, suggest that defendants could have taken many other alternative paths to address their alleged financial concerns which would not have harmed plan participants in the same way. The path defendants did take, plaintiffs allege, was imprudent, disloyal, and put their own interests ahead of those of the plan participants, in violation of ERISA. Defendants moved to dismiss the action, for lack of standing and for failure to state claims. Their motions were denied by the court. First, the court concluded that plaintiffs plausibly alleged that the ESOP overpaid for the new shares it purchased, causing an injury to the plan and to its participants whose shares were diluted. Accordingly, it found plaintiffs had standing to assert their claims. Second, the court disagreed with defendants that plaintiffs needed to exhaust their administrative remedies before bringing suit, declaring plaintiffs’ claims were ripe for adjudication. Finally, the court was satisfied that the complaint plausibly stated claims for breaches of fiduciary duties under ERISA, and expressed that defendants’ arguments to the contrary were fact questions not properly resolved under Rule 12(b) analysis. “Though Defendants contend that the price of shares and the value of the promissory note were both properly calculated and clearly in the best interests of the ESOP and its participants, the Amended Complaint plausibly alleges otherwise.” For these reasons, the court denied both motions to dismiss and ordered defendants to file their answers to the amended complaint.

Class Actions

Fourth Circuit

Frankenstein v. Host Int’l, No. 20-1100-PJM, 2024 WL 3362435 (D. Md. Jul. 10, 2024) (Judge Peter J. Messitte). One of the many benefits of 401(k) plans to employees is that plan participants may make pretax retirement contributions. One of the downsides of 401(k) plans though, especially for low-wage employees, is that they require individuals to prioritize future savings over cash income today, a tradeoff that many people are simply not in the financial position to make. These two truths about defined-contribution retirement plans were in conflict with one another in this interesting putative ERISA class action. Your ERISA Watch has not covered this case in some time. Our last reporting on this lawsuit was in March, 2021, when we summarized the court’s order denying defendants’ motion to dismiss. To refresh your memories, this action involves the HMSHost 401K Retirement Savings Plan. Plaintiff Dan Frankenstein is a participant in the plan and an employee of Host International, Inc. Specifically, Mr. Frankenstein is a bartender at an airport in California, who works for both wages and tips. The plan includes participants who work for tips as well as those who do not. It also has some participants who are union members and some who do not belong to a union. As relevant here, Host’s policy around tips, due to its practice paying tipped employees their credit card tips in cash at the end of each workday, prevents employees from deferring these earnings on a pretax basis. The court expressed its understanding of the dilemma as follows, “[f]or a two week pay period, assume that Plaintiff earned $500 in regular wages, received $500 in reported tips, has $200 in tax withholdings, and elected to defer 75% of his Compensation into his 401(k) account. His compensation for the two-week pay period would be $1,000 and his 401(k) deferral would be $750. However, since he [already] received $500 of his Compensation in tips…his paycheck includes $500 in regular wages only. Deduct from that amount $200 in taxes, which leaves only $300 to be deferred to Plaintiff’s 401(k) account. The remaining $450 would have to be contributed after-tax [through an arrears contribution] if Plaintiff chose to do so.” In this action, Mr. Frankenstein alleges that defendants’ refusal to permit tipped employees to defer their credit card tips on a pretax basis violates the terms of the plan and constitutes breaches of their fiduciary duties under ERISA Section 502. He further contends that defendants’ refusal to permit employees to defer credit card tips amounts to discrimination against tipped-employee plan participants in violation of Section 501(a), and that defendants’ decision to prevent pre-tax credit card tip deferrals is an arbitrary and capricious violation of Section 502(a)(1)(B). On March 11, 2022, Mr. Frankenstein filed the present motion to certify the proposed class of all current and former participants in the plan who received reported credit card tips as compensation outside their paycheck and had a deferral election in place at the time he or she received the reported tips. It’s taken over two years for the court to issue its decision on the motion. In this order the court denied the motion to certify. The problem is a class, like a union, needs to be united. And here, it seemed Mr. Frankenstein may be the only worker who desires the relief this litigation seeks. Pointedly, Mr. Frankenstein failed to identify a single individual other than himself who wants what he does. The court was broadly concerned about evidence and testimony that defendants supplied over widespread opposition, from both the workers and unions, about the company’s attempts to change tip payments to make them eligible for contribution to their retirement accounts on a pretax basis, and it found that defendants offered compelling evidence “that many of the members of Frankenstein’s proposed class are in fact ardently opposed to the relief he seeks.” This opposition ultimately posed a commonality issue, “since people are in different situations and some feel they’d be harmed by a modification that might go the way plaintiff would want to go.” It was this fundamental intraclass conflict which left the court unable to certify the class under Rule 23(a). Mr. Frankenstein for his part accused the defendants of “manufacturing” non-existent intraclass conflicts, and said that what the putative class members opposed was not the opportunity to make pretax deferrals with credit card tips, so much as defendants’ paycard system which took away their day-of cash wages, which many of the workers rely upon to make ends meet. But the court was not so convinced. In the court’s view, Mr. Frankenstein turned the class-certification inquiry “upside down” because “it is the plaintiff’s burden to prove that intraclass conflicts do not exist.” “To that end, the Court granted the parties leave to conduct class discovery until the future contemplated class-certification hearing might take place…which was held more than a year later. But when the time came for Frankenstein to present other ‘class proponents,’ quite simply, he brought forth none.” In light of this conflict, the court determined that defendants defeated Mr. Frankenstein’s bid for certification under Rule 23, and accordingly denied his motion to certify.

Disability Benefit Claims

Fourth Circuit

Penland v. Metro. Life Ins. Co., No. C. A. 8:21-3000-HMH, 2024 WL 3327366 (D.S.C. Jul. 8, 2024) (Judge Henry M. Herlong, Jr.). This disability benefits action was back before the district court on remand from the Fourth Circuit Court of Appeals after the appellate court reversed the district court’s June 22, 2022 summary judgment order affirming MetLife’s termination of long-term disability benefits to plaintiff Tracy Penland. The Fourth Circuit vacated that decision because of an intervening change in controlling law, which came about in its decision in Tekmen v. Reliance Standard Life Ins. Co., 55.4th 951 (4th Cir. 2022), favoring resolution of ERISA benefit disputes pursuant to Federal Rule of Civil Procedure 52 over summary judgment. Consistent with the instructions from the Fourth Circuit, the district court issued its findings of fact and conclusions of law pursuant to Rule 52 in this decision. Mr. Penland left his position as a procurement specialist for an automotive company in August 2015 and subsequently began receiving disability benefits. Mr. Penland suffers from many health conditions including gastrointestinal diseases, musculoskeletal ailments, a liver condition, mental health disorders, and chronic pain and sleep problems. Pursuant to the terms of the disability policy, several of Mr. Penland’s conditions were limited to maximum benefit payments of 24-months. MetLife maintains that non-limited conditions do not render Mr. Penland unable to earn more than 60% of his pre-disability earnings from any occupation to which he is reasonably qualified, and based its decision to discontinue benefits on this conviction. Ultimately, the court agreed with MetLife. Before it got there though, the court needed to resolve the parties’ dispute over the appropriate standard of review. MetLife argued that it was entitled to abuse of discretion review, while Mr. Penland contended that de novo review applies. The court sided with Mr. Penland, as the plan’s language requiring proof of disability satisfactory to MetLife was nearly identical to language that the Fourth Circuit found insufficient to unambiguously confer discretionary authority in a case before it in 2013, Cosey v. Prudential Ins. Co. of Am., 735 F.3d 161 (4th Cir. 2013). However, under de novo review the court was not convinced that Mr. Penland met his burden of proving his disability. The court found that Mr. Penland did not present objective evidence of radiculopathy, and that there was insufficient proof that his non-limited conditions prevent him from earning more than 60% of his pre-disability salary. The court stressed that it would not consider the effects of Mr. Penland’s limited conditions, rejecting the approach Mr. Penland argued in favor of considering the cumulative effects of both his limited and non-limited conditions. Thus, after having considered the entirety of the administrative record, the court found that Mr. Penland no longer satisfied the plan’s definition of disability as of the date of MetLife’s termination, and therefore affirmed MetLife’s decision. Accordingly, the court reached the same conclusion as it had in 2022, and entered judgment in favor of MetLife.

Eleventh Circuit

Rosenberg v. Reliance Standard Life Ins. Co., No. 23-13761, __ F. App’x __, 2024 WL 3385678 (11th Cir. Jul. 12, 2024) (Before Circuit Judges Wilson, Luck, and Anderson). Dr. Krista Rosenberg was part of a medical practice that provided disability insurance through an ERISA policy insured by Reliance Standard Life Insurance Company. The practice did not pay Dr. Rosenberg directly, but instead made payments to her Chapter S corporation. Sadly, Dr. Rosenberg developed a permanent and total disability and could no longer continue working. As a result, she filed a claim for disability benefits with Reliance. Reliance, however, denied her claim because Dr. Rosenberg’s income was paid to her corporation and not directly to her. In a denial letter that both the district court and the Eleventh Circuit would later say “borders on the absurd,” Reliance Standard determined that Dr. Rosenberg had no eligible earnings upon which to base a benefit in accordance with the plan and that she was therefore not entitled to disability benefits. Simply, and unsurprisingly, the district court and the Eleventh Circuit in this decision on appeal, agreed that “the only reasonable interpretation of the Policy is that Rosenberg’s ‘Covered Monthly Earnings’ includes her ‘compensation from the partnership’ notwithstanding the fact that it took the form of payments to her closely held pass-through corporation. We agree with the district court that Reliance cannot deny benefits to Rosenberg solely on the basis that she has no ‘Covered Monthly Earnings’ because her compensation from the partnership was paid to her closely held pass-through corporation rather than paid directly to her. Accordingly, we affirm the judgment of the district court without the necessity of addressing the alternate theory for affirmance urged by Rosenberg.” In this way, the Eleventh Circuit, in its brief unpublished per curiam decision, concluded Reliance’s interpretation was illogical and undermined the intent of the policy as a whole, and that its denial of Dr. Rosenberg’s disability benefits was arbitrary and capricious.

ERISA Preemption

Ninth Circuit

Dedicato Treatment Ctr. v. Aetna Life Ins. Co., No. 2:24-cv-03136-CAS-PDx, 2024 WL 3346241 (C.D. Cal. Jul. 8, 2024) (Judge Christina A. Snyder). An out-of-network drug and alcohol treatment center, plaintiff Dedicato Treatment Center, Inc., filed a six count state law complaint in state court against defendant Aetna Life Insurance Company seeking the difference between the billed and paid amounts for healthcare it provided to three patients insured with ERISA welfare plans administered by Aetna. Aetna removed the matter to the federal judicial system and then filed a motion to dismiss it arguing the claims are preempted under ERISA Section 514(a). Shortly after filing its motion to dismiss, Aetna filed a notice of supplemental authority flagging the Ninth Circuit’s opinion in Bristol SL Holdings, Inc. v. Cigna Health & Life Ins. Co., 103 F.4th 597 (9th Cir. 2024). (Your ERISA Watch featured the decision as our case of the week on June 5, 2024.) Relying on the Bristol decision and its reasoning, the court agreed with Aetna that Dedicato’s state law claims relate to the ERISA plans and that they are therefore barred by conflict preemption. Like the Ninth Circuit recognized in Bristol, the court found that the healthcare provider was seeking to obtain through state law claims an alternative mechanism to secure plan-covered payments the parties discussed on the phone to verify benefits and coverage. The court noted that plaintiff concedes “the existence of the plan is what caused [it] to contact Aetna and see if Aetna would agree to pay…for the treatment of Aetna’s plan participants.” Thus, the court stated that the gravamen of the complaint is an assertion that Aetna paid less to the provider than the value of the services rendered, and that payment is therefore contingent on the existence of the terms of the patient’s ERISA-governed healthcare plans. Finally, the court expressed that the state law claims also have an impermissible connection with the ERISA plan. “Permitting plaintiff to pursue such claims would force courts to adjudicate whether all payments made to out-of-network providers are ‘reasonable,’ regardless of the terms and rates set forth in patients’ plans. Accordingly, plaintiff’s claims are barred because they bear an impermissible ‘connection with’ ERISA plans.” For these reasons, the court granted Aetna’s motion to dismiss. Dismissal was without prejudice and the provider was given the opportunity to file an amended complaint should it wish.

Medical Benefit Claims

Third Circuit

Palazzi v. Cigna Health and Life Ins. Co., No. 2:23-cv-06278 (BRM) (AME), 2024 WL 3361615 (D.N.J. Jul. 8, 2024) (Judge Brian R. Martinotti). Plaintiff Pierangela Bonelli was referred to a back surgeon, Dr. Roger Hartl, after she began experiencing intense back pain. Dr. Hartl recommended surgery to treat Ms. Bonelli. Ms. Bonelli has health insurance coverage through an employer sponsored health plan administered by defendant Cigna Health and Life Insurance Company. Dr. Hartl is an out-of-network provider. Before he would perform the surgery, Dr. Hartl needed to receive pre-authorization from Cigna. He followed the plan’s requirements to obtain the necessary pre-authorization and received a letter from Cigna approving the pre-authorization request for Ms. Bonelli’s surgery. Based on the approval, Ms. Bonelli underwent the back surgery. In the end though Cigna denied coverage for the surgery, stating that the plan does not provide for out-of-network benefits. The insurance provider maintains that the authorization letter specifically approving the surgery “was sent in error.” In this action, Ms. Bonelli and her family member, plaintiff Marco Palazzi, challenge Cigna’s denial. This case was originally brought as a state law action, but Cigna removed it to federal court arguing ERISA preempted the state law causes of action. Plaintiffs then amended their complaint to assert an ERISA claim instead. Cigna responded to the ERISA complaint by filing a motion to dismiss. On August 25, 2023, the court granted the motion to dismiss, finding that the complaint failed to articulate how the plan entitles plaintiffs to the benefits they seek. Dismissal was without prejudice, and plaintiffs timely amended their complaint. Cigna once again moved for this dismissal. This time, its motion to dismiss was denied. “Here, the Court finds Plaintiffs have sufficiently alleged an ERISA claim for unpaid benefits in the SAC because they have plausibly alleged that the Plan, through its ‘Medical Management Program’ provision, provides coverage for Bonelli’s surgery with an out-of-network provider and that they are entitled to reimbursement under the Plan.” The court noted that the plan “does not say that it will not cover any out-of-network providers under any circumstance.” In fact, the plan specifically provides for a process, which plaintiffs and their healthcare provider followed, for pre-authorizing out-of-network claims. The court said it was reasonable to infer that this process exists because the plan in some circumstances covers healthcare with providers who are not in network. Therefore, the court found that plaintiffs plausibly alleged an ERISA Section 502(a)(1)(B) claim for recovery of benefits and thus denied the motion to dismiss the second amended complaint. 

Tenth Circuit

K.S. v. Cigna Health & Life Ins. Co., No. 1:22-cv-00004-TC-DBP, 2024 WL 3358653 (D. Utah Jul. 8, 2024) (Judge Tena Campbell). In this action mother and son K.S. and Z.S. seek judicial review of Cigna Health and Life Insurance Company’s denial of their claim for coverage under the Accenture LLP Benefit Plan for the residential mental healthcare treatment Z.S. received in 2019 and 2020 at a facility in Utah to stabilize him during a severe mental health crisis. Before seeking the treatment at issue in the instant action, Z.S. had cycled out of hospitals, partial hospitalization programs, intensive outpatient facilities, and several other forms of psychiatric healthcare, and had attempted suicide on at least four occasions. The long-term residential care the family seeks coverage of in this action was strongly recommended to them by Z.S.’s treating providers given his long history of other treatment options which had failed to stabilize him or improve his health. The family asserted two causes of action, a claim for recovery of benefits and a claim for violation of the Mental Health Parity and Addiction Equity Act. The parties filed cross-motions for summary judgment on the denial of benefits claim under arbitrary and capricious standard of review. The court ruled that Cigna’s denial was an abuse of discretion and entered judgment in favor of the family. Specifically, the court found that Cigna did not engage in a meaningful dialogue with the family or the opinions of Z.S.’s healthcare providers, that its denials were cursory and often contradicted by the medical record, and that it applied the medical necessity criteria inconsistently. The court further criticized Cigna’s failure to discuss Z.S.’s prior treatment history and his attempts to receive lower-levels of psychiatric care which had been ineffective. “Moreover, Cigna essentially conceded at the hearing on the motions for summary judgment that there is evidence in the record showing that at various points throughout his stay at Elevations, Z.S.’s treatment may have met the ‘medical necessity’ criteria. But Cigna’s letters fail to address this evidence or explain why coverage for those dates was denied…In sum, Cigna failed to meet the minimum requirements for explaining why it deemed that Z.S.’s treatment at Elevations was not ‘medically necessary’ in its denial letters. Cigna’s denial of coverage warrants reversal on this basis.” For these reasons, the court granted plaintiffs’ motion for summary judgment and denied defendants’ motion. However, the court declined to award the family benefits. In line with other recent decisions from the District of Utah, the court here concluded that remand was the proper remedy to rectify Cigna’s procedural errors handling the claim for benefits, as the “Tenth Circuit has found that remand was appropriate where the plan administrator committed procedural errors similar to those Cigna made here.” The court further justified its decision to remand to Cigna by stating that it “cannot say that there was no evidence in the record to support Cigna’s denial of benefits, or that the Plaintiff was clearly entitled to the claimed benefits.” As a result, the court remanded to Cigna for further considerations of the family’s claim. However, it cautioned the insurance company that it may not adopt any new rationale to deny the claim “not previously conveyed to the Plaintiffs.”

Pleading Issues & Procedure

Third Circuit

Harper v. United Airlines, No. 23-22329 (ZNQ) (JBD), 2024 WL 3371404 (D.N.J. Jul. 11, 2024) (Judge Zahid Quraishi). Pro se plaintiff Daniel Harper filed a complaint in New Jersey state court alleging United Airlines of wrongfully refusing to cancel his health insurance coverage and improperly continuing to deduct monthly premium payments, causing him $15,000 in damages. United Airlines removed the case to federal court. The district court in turn found that its jurisdiction was proper, as the health insurance plan at issue is governed by ERISA and the sole legal basis for the relief Mr. Harper seeks is under ERISA’s civil enforcement mechanism. United Airlines has since moved to dismiss the action for failure to state a claim. Its core argument was that Mr. Harper cannot plausibly plead a claim for any relief under ERISA because he “has already received the principal relief that his Complaint seeks – namely cancellation of coverage for his dependent effective February 1, 2023 and a refund on the premiums paid for that coverage.” Mr. Harper concedes this fact. United contends further that Mr. Harper is not entitled to any additional relief, and that there is no longer an active controversy in dispute. In its decision, the court was unsure about this. It stated, “a few questions remain regarding Plaintiff’s claims. First, Plaintiff seeks $15,000 in damages but does not explain, in either the Complaint or his Opposition, what the $15,000 damages amount relates to. Second, Plaintiff argues that his ‘family continues to suffer and incur damages due to the action of Defendant and attaches a bill he received on June 5, 2024…for services rendered in October 2023 to support his position. Finally, Plaintiff argues that Defendant granted his appeal only after [he] filed the Complaint because Defendant ‘could not explain their negligence or blatant disregard of the court order.” However, the court highlighted that Mr. Harper raised these facts for the first time in his opposition, and stressed that they were absent from the complaint itself. Therefore, the court said it would not consider “the June 2024 Bill or Plaintiff’s conclusory and unsubstantiated assertions that Defendant was negligent in evaluating the sufficiency of Plaintiff’s claims.” Accordingly, the court found that Mr. Harper failed to successfully plead a claim for relief under ERISA Section 502 and therefore granted the motion to dismiss, though the complaint was dismissed without prejudice.

Fourth Circuit

Doe v. Blue Cross & Blue Shield of N.C., No. 3:23-cv-750-MOC-WCM, 2024 WL 3346319 (W.D.N.C. Jul. 8, 2024) (Judge Max O. Cogburn, Jr.). Plaintiffs John Doe and Mary Doe brought this suit against Blue Cross and Blue Shield of North Carolina to challenge its denial of their claim for benefits relating to Mary Doe’s stay at a treatment center. Plaintiffs asserted two causes of action under ERISA, a claim for benefits and an equitable relief claim for violation of the Mental Health Parity and Addiction Equity Act. Blue Cross moved to strike the complaint or alternatively dismiss for failure to state a claim. Blue Cross supplied three reasons why it believed the court should strike or dismiss the complaint. First, it argued that the complaint violates Federal Rule of Civil Procedure 10(a) because the title of the complaint does not include the names of the parties. Second, it contended that the Section 502(a)(3) claim was improperly duplicative of the claim for benefits under Section 502(a)(1)(B). Finally, Blue Cross asserts that the action should be dismissed as untimely filed under the terms of the plan. In this decision, the court only engaged with the Blue Cross’s last argument. The terms of the plan state that “[a]ny civil action you may choose to bring under ERISA must be filed within one year of the end of the plan’ first level internal claim and appeal procedure,” unless the claimant pursues the plan’s external review and appeal procedure. This action was brought “214 days after the one-year period of limitations ran from the March 18, 2022 First Level Denial.” Thus, plaintiffs’ action was only timely if they could establish that their complaint satisfies the second limitations period for parties who elect to pursue the plan’s external review claim and appeal procedure.” The court concluded that plaintiffs did not do so. “While Plaintiffs did pursue a second level appeal, they failed to pursue the Plan’s external review claim procedure, which required Plaintiffs to file a request for external review with the North Carolina Department of Insurance.” Further, the court stated that even if it tolled the limitations period during the 47 days between plaintiffs’ submission of their second level appeal and defendant’s denial of that appeal, the lawsuit remains untimely. Accordingly, the court dismissed plaintiffs’ complaint as time-barred, and therefore did not address Blue Cross’s alternative grounds for dismissal. The action was dismissed with prejudice.

Withdrawal Liability & Unpaid Contributions

Third Circuit

Allied Painting & Decorating, Inc. v. Int’l Painters & Allied Trades Indus. Pension Fund, No. 23-1537, __ F. 4th __, 2024 WL 3366492 (3d Cir. Jul. 11, 2024) (Before Circuit Judges Hardiman, Matey, and Phipps). In 2005, the employer Allied Painting & Decorating, Inc. closed its operations and stopped contributing to the International Painters and Allied Trades Industry Pension Fund. Less than five years later, the owner of Allied, Robert Smith, created a new painting company called Allied Construction Management. The Multiemployer Pension Plan Amendments Act (MPPAA) kicked it once Allied returned to the painting industry, triggering withdrawal liability. But the Fund dragged its feet, and twelve years would go by before the Fund did anything about this. The Fund did not send its demand to Allied for $427,195 until 2017. Given the great delay since it last contributed to the fund, the employer objected to the assessed withdrawal liability assessment on the basis of laches. The dispute went into arbitration. The arbitrator found that the Fund did not act “as soon as practicable” in issuing a notice and demand to Allied. Nevertheless, the arbitrator concluded that Allied was not prejudiced by this delay, which doomed its laches defense. Accordingly, arbitration ended with the arbitrator concluding that Allied owed the $427,195 to the Fund for its withdrawal. The employer appealed this decision in federal court. The district court concluded that Allied was indeed prejudiced by the delay and vacated the award. The Fund appealed. The Third Circuit issued this decision affirming the district court’s order vacating the arbitration award, though it did so on different grounds. “Much is made of whether Allied suffered prejudice from this lengthy delay. But diligence is what the Multiemployer Pension Plan Amendments Act of 1980 requires, and all agree that the Fund did not send Allied the bill ‘as soon as practicable’ after Allied’s withdrawal…As a result, the Fund cannot recover the claimed withdrawal liability, and we affirm the District Court’s order vacating the Arbitrator’s Award.” The Third Circuit was adamant that the only coherent reading of the statute is to understand the “as soon as practicable” requirement as an essential element for a plan to recover a withdrawal liability. “That a fund provide notice of its withdrawal-liability assessment and demand payment from the employer ‘as soon as practicable’ following the employer’s withdrawal is a requirement of § 1399(b)(1). If this statutory requirement is not met, the fund’s claim for the employer’s withdrawal liability must fail.” Having concluded that this “independent statutory requirement” was not met here, the Third Circuit concluded that the Fund could not recover the withdrawal liability amount from Allied under MPPAA. Thus, the court of appeals affirmed the lower court’s order vacating the arbitrator’s award.