Appvion, Inc. Ret. Sav. & Emp. Stock Ownership Plan v. Buth, No. 23-1073, __ F.4th __, 2024 WL 1739032 (7th Cir. Apr. 23, 2024) (Before Circuit Judges Wood, St. Eve, and Lee)

Appvion, Inc., which has been around since 1907 and used to be called The Appleton Coated Paper Company, is a Wisconsin-based corporation that specializes in producing carbonless paper and thermal paper. The march of digital technology has not been kind to paper companies, and Appvion is no exception. Its French owners tried to sell the company to third parties in the 1990s, but without success, and thus they ultimately sold Appvion to its employees in 2001 in the form of an employee stock ownership plan, or ESOP.

Loyal readers of Your ERISA Watch likely know what happened next. The company continued its downward spiral and eventually went bankrupt in 2017, devastating the retirement plans of hundreds of employees. The bankruptcy court appointed Grant Lyon to act on behalf of the plan, and after conducting an investigation he was not happy with what he discovered. He eventually brought “an avalanche of claims” under various laws, including ERISA, alleging that various defendants fraudulently inflated Appvion’s price when it was sold to the ESOP, and that these defendants continued artificially inflating the company’s value to the detriment of the plan and its participants.

The defendants all filed motions to dismiss, and the district court granted almost all of the relief they requested. (Two ERISA claims against the most recent plan trustee, Argent Trust Company, survived.) Lyon appealed, raising arguments under three legal categories: ERISA, securities fraud, and state law. The Seventh Circuit addressed each in order in this published opinion.

The court began its discussion of the ERISA claims with ERISA’s statute of repose, which generally bars claims older than six years. Lyon filed his complaint on behalf of the plan in 2018, which would ordinarily prevent him from recovering for any pre-2012 activity.

Lyon contended that ERISA’s “fraud or concealment” exception applied, which would allow him to challenge pre-2012 actions, but the Seventh Circuit rejected this argument. The court held that in order for the exception to apply Lyon was required to show that the defendants engaged in some “trick or contrivance” to cover up their wrongdoing; the underlying fraud itself was not enough. The court ruled that Lyon had not satisfied this requirement: his “allegations of fraud are the same as his allegations of fraudulent concealment.” In other words, when the defendants allegedly made misleading representations about Appvion’s valuation in 2001, and continued to approve inflated prices for Appvion, these were “the identical actions constituting the underlying fraud” and thus could not constitute an independent “trick or contrivance.”

The court further ruled that the defendants’ submission of regulatory forms to the government reporting the inflated values was an insufficient “trick or contrivance” because “the doctrine of fraudulent concealment requires ‘positive acts,’ not ‘[c]oncealment by mere silence.’” In the court’s view, “Lyon’s approach would make the exception to ERISA’s statute of repose apply whenever the defendants failed to come clean about their fraud. ERISA requires more.”

Having established a temporal line in the sand in 2012, the Seventh Circuit examined Lyon’s allegations regarding conduct after that date, starting with his breach of fiduciary duty claims. The court agreed that Lyon had proved that the defendants in these claims were fiduciaries, but was confused about which standard the district court had used in determining whether they had committed any breaches. Did the district court impose a “heightened pleading standard” under Federal Rule of Civil Procedure 9(b) because Lyon’s allegations sounded in fraud, or did it apply the more lenient default standard set forth by Federal Rule of Civil Procedure 8?

The Seventh Circuit concluded that the district court had gotten it wrong three ways, regardless of which standard it had applied. First, the appellate court agreed with Lyon that he had pleaded fraudulent intent with particularity because he provided the “who, what, when, where, and how” elements of the alleged fraud. The district court had criticized Lyon for not also pleading “why,” wondering why some of the defendants would commit fraud when they had nothing to gain from it, but the Seventh Circuit ruled that this was not required under Rule 9(b).

Second, the Seventh Circuit ruled that the district court had erred by only evaluating Lyon’s claims under the heightened standard imposed by Rule 9(b) without also considering whether his claims properly alleged a breach of fiduciary duty for non-fraudulent violations of ERISA under the more lenient Rule 8 standard.

Third, the Seventh Circuit ruled that the district court had “raised the bar too high” in evaluating “plausibility.” The court noted that while Rule 9(b) requires heightened particularity in pleading, it does not require heightened plausibility: “[a]ll it does is call for more than a ‘short and plain statement’ of the claim; it leaves the requirement of plausibility untouched.”

With these three clarifications, the Seventh Circuit ruled that Lyon had met his pleading burden. Lyon had alleged that Appvion’s directors and officers artificially boosted Appvion’s price so that they would receive increased bonuses, and did so by providing exaggerated projections, adding a fraudulent control premium, and excluding relevant pension debt. Lyon also alleged that the plan’s trustees and administrators were incentivized to accept these representations in order to keep Appvion’s business. Furthermore, Lyon had alleged that Appvion’s leadership had repeatedly tried and failed to sell Appvion, thus suggesting that their evaluations of the company’s value were faulty.

These “red flags” were sufficient for the Seventh Circuit to conclude that Lyon had plausibly alleged a breach of fiduciary duty. The court noted that it “takes no position” on the merits of the case, and “[p]erhaps Lyon will have trouble proving those allegations,” but at the pleading stage Lyon’s allegations were sufficient.

As for Lyon’s prohibited transactions claims against Appvion’s officers, the court found that Lyon’s arguments were “even stronger.” The Seventh Circuit ruled that the district court had inappropriately grouped these claims with its fraud discussion and again imposed a too-strict pleading standard. The Seventh Circuit noted that under these claims Lyon only needed to allege that the officers exercised the power to direct trustees to purchase Appvion stock, and that the trustees did so. The question of whether the purchases were for adequate consideration was not an issue Lyon had to address because that issue is an affirmative defense Lyon had no duty to negate in his complaint.

The Seventh Circuit also allowed Lyon’s co-fiduciary liability claims to proceed because he had properly alleged that defendants, by failing to comply with their duties under ERISA, enabled breaches by their co-defendants. This was true regardless of whether the defendants affirmatively knew that their co-defendants were also breaching their duties.

Next, the court tackled the dismissal of Lyon’s securities fraud claims, which it affirmed for reasons better evaluated by Your Securities Fraud Watch.

Finally, the court addressed Lyon’s state law claims. The court found that Lyon had waived arguments on some of these claims and that the remainder were properly dismissed because they were preempted by ERISA. Lyon’s state law claims against Appvion’s directors and officers “arise entirely from the Plan participants’ ERISA-governed ownership of Appvion,” and thus were “little more than an ‘alternative enforcement mechanism,’” which is not allowed under ERISA’s preemption provision.

As for Lyon’s state law claims against the plan’s independent appraiser, the Seventh Circuit found these preempted as well because they sought money damages, which were not available to Lyon under ERISA, as ERISA only allows equitable relief against non-fiduciaries. The court ruled that these claims “therefore seem to us an ‘end run around ERISA’s more limited remedial scheme.’”

In short, the decision was a qualified win for Lyon and the Appvion plan participants. Although many of their claims remain dismissed, they will be able to proceed on their core claims that the defendants breached their fiduciary duties in overvaluing the company.

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

Breach of Fiduciary Duty

Second Circuit

Trustees of the Int’l Union of Bricklayers & Allied Craftworkers Local 1 Conn. Health Fund v. Elevance, Inc., No. 3:22-CV-1541 (VDO), 2024 WL 1707223 (D. Conn. Apr. 22, 2024) (Judge Vernon D. Oliver). The trustees of two multi-employer welfare benefit plans have sued Anthem Blue Cross/Elevance, Inc. for breaches of fiduciary duties under ERISA after they discovered that the insurance company was repricing healthcare claims and paying more than the negotiated in-network rates for medical services. These overpayments, according to the complaint, have caused the plans to pay hundreds of millions of dollars over and above the contracted discount rates for in-network providers. The Trustees suspect that these higher than contracted amounts may not simply be going to the providers. It is their theory that Anthem may be compensating itself with some portion of the “allowed amount.” As a result of the shortfalls from the alleged overpayments the funds have begun to take away benefits from participants. One fund has begun requiring participants to pay a $4,000 deductible to reduce expenses, while the other has diverted $2 of contributions per participant per hour earmarked for the pension fund to the healthcare plan “thus reducing the retirement income available to participants when they retire.” In this action, the Trustees want information about what has been paid and to whom, and for restitution of the financial losses incurred. The Anthem defendants moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). The court denied the motion to dismiss for lack of Article III standing pursuant to Rule 12(b)(1). It stated plainly that plaintiffs suffered a particularized and concrete injury in fact traceable to defendants’ alleged conduct. This victory was short-lived, however, because the court granted the motion to dismiss for failure to state a claim. Its decision boiled down to a finding that the complaint failed to plausibly allege that defendants are ERISA fiduciaries. The court relied on Second Circuit and First Circuit caselaw to hold that the theories of liability and alleged misconduct here are related to a contract by which Anthem is bound. “Much like the complaints dismissed by Second Circuit and First Circuit, the claims here are ‘fundamentally premised on the notion that there were ‘correct’ rates to be applied to each submitted claim, but that [Defendants] failed to apply them.’” Importantly, the court distinguished this case from cases alleging defendants set their own compensation. “Plaintiffs do not plausibly allege that Defendants are able to set their own compensation. To the contrary, Plaintiffs allege that they have brought this lawsuit ‘to ensure that [Anthem is] not paying itself compensation in excess of the contracted rates and fees, and [Anthem is] not keeping compensation that is required to be returned under the [contracts].’” The court did note that plaintiffs are alleging that Anthem is exercising discretion in setting its own compensation if it is taking any amount above the contractually agreed-upon percentages and fees and that it has a fiduciary obligation to disclose that compensation. Nevertheless, the court determined that these allegations as currently pled are speculative, not affirmative. Finally, to the extent plaintiffs are challenging Anthem’s contracts with network providers, the court wrote “those actions seem to be ‘business decisions’ that do not fall under the purview of ERISA.”  Accordingly, despite Anthem’s access to the funds’ large pools of money, the court could not plausibly infer that defendants were acting as fiduciaries when spending that money. Therefore, the court granted the Rule 12(b)(6) motion to dismiss, although all claims were dismissed without prejudice, and the court specified that plaintiffs may move to file an amended complaint in light of its decision.

Fourth Circuit

Franklin v. Duke Univ., No. 1:23-CV-833, 2024 WL 1740479 (M.D.N.C. Apr. 23, 2024) (Judge Catherine C. Eagles). Plaintiff Joy Franklin, on behalf of herself and a group of similarly situated retirees and beneficiaries, commenced this action against the fiduciaries of the Duke University retirement plan. In her complaint Ms. Franklin alleges defendants are violating ERISA’s actuarial equivalence, anti-forfeiture, and fiduciary duty provisions by improperly calculating joint and survivor annuity and qualified joint and survivor annuity benefits and as a result are shortchanging retirees by millions of dollars. Defendants moved to dismiss all claims made on behalf of the plan pursuant to Section 502(a)(2). The court denied the motion to dismiss in this decision. It held that the complaint plausibly alleges that the defendants are not calculating the benefits in compliance with ERISA’s statutory requirements, and expressed that it could infer from the complaint that the joint and survivor annuity benefits offered by the plan are not the actuarial equivalent of the single life annuity benefits because the joint survivor annuities use unreasonable and outdated formulas in their calculations. In their motion defendants pointed out ERISA’s actuarial equivalence statute does not use the word “reasonable.” The court acknowledged that this is factually correct, but it nevertheless held that the “implementing regulations include a reasonableness component…and many courts have applied a ‘reasonable assumptions’ standard at the motion to dismiss stage.” Defendants’ position, the court said, “would make the statutorily-imposed actuarial equivalence requirement meaningless.” Additionally, the court ruled that Ms. Franklin adequately alleged that the inputs defendants used reduced her benefits as compared to the default benefit and that she therefore sufficiently pled an anti-forfeiture claim. Thus, at least at this early posture, the court was satisfied that the complaint alleges defendants’ accrual practices “breach [the] outer bounds” of permissibility and may constitute forfeitures under the statute. Finally, the court found Ms. Franklin adequately pled her fiduciary breach claims alleging the board and board members breached their duties by administering the plan in violation of ERISA’s actuarial equivalence requirements and that the university breached its duty to monitor the actions of the board and board members to ensure they complied with ERISA and its requirements. Accordingly, Ms. Franklin’s class action complaint was left undisturbed by the court’s decision.

D.C. Circuit

Wilcox v. Georgetown Univ., No. 23-7059, __ F. App’x __, 2024 WL 1739266 (D.C. Cir. Apr. 23, 2024) (Before Circuit Judges Childs, Garcia, and Ginsburg). On March 31, 2023, the district court issued an order denying plaintiffs’ motion for leave to amend a dismissed putative class action complaint brought by the participants of Georgetown University’s retirement plans against the plan’s fiduciaries for breaches of their duties. Your ERISA Watch covered the decision in our April 12, 2023 newsletter. The district court held that the proposed amended complaint did not add to the original pleading nor cure the deficiencies which had led to dismissal. It stated, “Plaintiffs identify ways in which plan management could be different, or even improved, but they have not alleged facts to support a plausible inference that defendants have failed as fiduciaries.” The participants appealed the decision to the D.C. Circuit Court of Appeals. In this no-frills unpublished order the D.C. Circuit affirmed the lower court’s holding, agreeing that amendment “would be futile because it did not cure any of the earlier-identified deficiencies.” Additionally, the court of appeals agreed with the district court’s standing analysis, concurring that the named plaintiffs could not bring claims for funds they did not personally invest in, as they suffered no direct injury.

Class Actions

Eighth Circuit

Fritton v. Taylor Corp., No. 22-CV-415 (JMB/TNL), 2024 WL 1757170 (D. Minn. Apr. 24, 2024) (Judge Jeffrey M. Bryan). The plaintiff participants of the Taylor Corporation 401(k) Plan moved for preliminary approval of a class action settlement. In this order the court granted the motion and preliminarily certified the settlement class. The court found for the purposes of the settlement that the requirements of Federal Rule of Civil Procedure 23 have been met. It concluded that the class is ascertainable and so numerous as to make joinder impracticable, that common questions of fact and law about the fiduciaries’ actions unite the class members, that the named plaintiffs are typical of others in the class, and that the plaintiffs and their counsel are adequate representatives to act in the interests of the members of the settlement class. The court also concluded that certification under Rule 23(b)(1) is proper because prosecutions of separate actions by individual members of the class would create a risk of inconsistent adjudications that would establish incompatible standards of conduct for the management of the plan. Finally, with regard to class certification, the court determined preliminarily that this action may proceed as a non-opt-out class action where members of the class are bound by any judgment concerning the settlement in the action. Having so found, the court preliminarily certified the class of plan participants and beneficiaries, and appointed Edelson Lechtzin LLP and Capozzi Alder P.C. as co-lead counsel and Gustafson Gluek PLLC as local counsel, and the five named plaintiffs as the representatives of the settlement class. The decision then turned to its preliminary approval of the settlement, finding that the proposed settlement appears to be fair and reasonable and the result of a fair arm’s-length negotiation. The same was true for the plan of allocation, which the court once again found to be fair, reasonable, and adequate. Satisfied that the proposed settlement terms comply with the Class Action Fairness Act, the decision progressed to more granular details: scheduling the fairness hearing; setting the mode of class notice via U.S. Mail; approving the form and content of the notice to be sent; structuring the ways and means for filing objections; and informing plaintiffs about how and when to file a motion for an award of attorneys’ fees and expenses. If there are no surprises, this class action will reach its conclusion by as early as this summer. But, should there be some surprise, we’ll be sure to cover it in an upcoming newsletter.

ERISA Preemption

First Circuit

Morales v. Junta De Sindicos Del Royalty Fund Mechanized Cargo Local 1674 ILA, No. 24-cv-01096 (GMM), 2024 WL 1763763 (D.P.R. Apr. 24, 2024) (Judge Gina R. Méndez-Miró). Local 1575 is a branch of the International Longshoremen’s Association Union which serves as a collective bargaining representative for its union members in negotiations with contributing employers. In 2010, the union and the contributing employers created a trust for the benefit of the employees. The governing deed provides that the trust is a welfare and pension benefit plan to be governed by Section 302(c) of the Taft-Hartley Act and ERISA. The trust is administered by a board of trustees comprised of an equal number of union and employer representatives. Currently, all contributing employers have ceased their operations and all but one of the trustees is deceased. Defendant Francisco González Ríos is the sole remaining trustee and trust administrator. Plaintiff Francisco Díaz Morales filed a civil action in state court in Puerto Rico against the board of trustees and Mr. González Ríos alleging that defendants are violating Puerto Rico’s Trust Act. The complaint requests the removal of Mr. González Ríos as trustee and trust administrator, the appointment of a new trustee to administer and liquidate the trust, reward appropriate remedies for breaches of fiduciary duties, terminate the trust, issue declaratory judgment, and award attorneys’ fees. Defendants removed the action to federal court. They maintain that the trust is governed by ERISA and the Taft-Hartley Act, and thus the claims in the complaint are completely preempted by federal law. Mr. Díaz Morales filed a motion for remand. In this order the court denied the motion to remand, concluding that removal was proper. It held that the trust’s Form 5500s clearly indicate that the trust is a welfare benefit plan governed by ERISA. The complaint, it stated, “essentially seeks to exercise Plaintiff’s rights under the Trust in accord with the provisions of Deed Number One. Thus, the dispute falls within the auspices of Section 502(a) of ERISA.” Given this determination, the court agreed with defendants that complete preemption applies. As a result, the court clarified that it has exclusive federal jurisdiction over the action and therefore denied the motion to send the lawsuit back to San Juan Superior Court.

Pension Benefit Claims

Eighth Circuit

Abrahams Kaslow & Cassman, LLP v. Kinnison, No. 8:23-CV-328, 2024 WL 1742139 (D. Neb. Apr. 23, 2024) (Judge Joseph F. Bataillon). Plaintiff Abrahams, Kaslow & Cassman LLP (“AKC”), a law practice in Nebraska, filed this interpleader action to deposit with the court the funds remaining in decedent Ronald Craig Fry’s 401(k) profit sharing plan account. Plaintiff requests the court resolve competing claims for the benefits among potential beneficiaries, who consist of decedent’s surviving spouse, defendant Julie Kinnison, and decedent’s son, defendant Tyler Fry (who is also the representative of his father’s estate.) Ms. Kinnison moved to dismiss the complaint with prejudice, arguing the funds the law firm seeks to interplead are not in dispute. Ms. Kinnison has sought a portion of the funds in the pension account in a related state court probate action. Ms. Kinnison argued in her motion to dismiss that the related case does not seek money from the 401(k) account and “there is no actual controversy as to who is entitled to those funds.” However, the court disagreed. It stated, “this argument makes little sense as Kinnison does not identify another source of funds to which she may be entitled and her argument is premised on AKC allegedly impairing her ability to obtain the full benefit as a beneficiary to the R.C. Fry Plan, not to any other source of money. Because a plaintiff is limited to equitable relief on ERISA claims, Kinnison’s remedy in the related case must seek recovery from a specifically identifiable fund, not AKC’s ‘assets generally.’” Therefore, the court held that Ms. Kinnison cannot seek compensatory damages from the law firm, only equitable damages, meaning the funds in question from the pension fund are subject to claims by multiple adverse parties and the firm “is permitted to interplead the funds.” Accordingly, the court denied Ms. Kinnison’s motion to dismiss. Finally, the court also denied Abrahams, Kaslow & Cassman LLP’s request for dismissal as a party. It determined that dismissal of the law firm and a ruling on its request for declaratory relief was premature.

Plan Status

Sixth Circuit

Mynarski v. First Reliance Standard Life Ins. Co., No. 3:23-cv-00075-GFVT, 2024 WL 1811342 (E.D. Ky. Apr. 25, 2024) (Judge Gregory F. Van Tatenhove). Plaintiff Adam Mynarski sued First Reliance Standard Life Insurance Company in Kentucky court to challenge an adverse benefit determination under a long-term disability policy. Mr. Mynarski twice attempted to serve First Reliance at the address listed on the policy. First Reliance did not appear. Mr. Mynarski then mailed a copy of the amended complaint and summons to First Reliance at its registered address in New York. This attempt was more successful. Thirty days after service at its correct address, First Reliance removed the action to federal court. It argued that the policy is governed by ERISA. Mr. Mynarski moved to remand to state court. The remand motion was originally granted by the court, which found that First Reliance was responsible for the confusion because it failed to keep an up-to-date and accurate address on the policy. Therefore, the court equitably estopped First Reliance from benefitting from its own negligence by asserting timely removal pursuant to its actual date of receipt. First Reliance moved to reconsider the court’s remand order. In this decision the motion to reconsider was granted, as First Reliance persuaded the court that its earlier reasoning rested on a material factual error. The court agreed with First Reliance that it was never obligated to register in Kentucky to begin with because the policy is a group disability policy delivered to Mr. Mynarski’s employer in New York. First Reliance attached proof that it was properly registered in New York. The court thus found that its prior decision was in error and therefore concluded that reconsideration was necessary “to prevent a miscarriage of justice in this case.” Accordingly, the court held that First Reliance’s removal was timely. Having so found, the court then analyzed where ERISA applies to the policy and whether it has federal jurisdiction over the action. It found it did. The court determined that there was a plan, and that “[t]he intended benefits, beneficiaries, source of financing, and procedures for receipt are manifest upon review of the policy.” Moreover, the court found that the plan was maintained by Mr. Mynarski’s employer and was established with the intent of providing benefits to the employees. Finally, the court found that the policy did not fall under the safe harbor exclusion because the employer contributes to the policy and participation is not voluntary. Accordingly, the court found ERISA governs the plan and confers federal jurisdiction. Thus, the court granted the motion to reconsider and vacated its prior remand order.

Provider Claims

Second Circuit

Jenkins v. Aetna Health Inc., No. 23 Civ. 9470 (KPF), 2024 WL 1795488 (S.D.N.Y. Apr. 25, 2024) (Judge Katherine Polk Failla). Dr. Arthur Jenkins III, M.D. and his neurospine practice initiated this action in New York state court against Aetna Health Inc. and its subsidiaries seeking to enforce payment promises the insurance company allegedly made to the provider regarding the amounts it would reimburse for surgical procedures performed on patients insured under Aetna health plans. Defendants removed the action based on federal jurisdiction, asserting that the state law causes of action are completely preempted by ERISA. The Aetna defendants alternatively claim that the federal court has jurisdiction over the claims to the extent they are preempted by the Medicare Act. Dr. Jenkins disagreed, and argued that removal of the action was without a valid legal basis. Accordingly, the provider moved to remand his action back to state court for lack of federal subject matter jurisdiction. The court agreed with Dr. Jenkins and granted his motion. It determined that ERISA did not preempt this action because the promises for payment amounts were independent of the terms of the ERISA-governed plans. “Similar to McCulloch [Orthopadeic Surgical Services, PLLC v. Aetna Inc.], each of Plaintiffs’ causes of action concerns Aetna’s promise of payment at a specified rate, not ‘established by any benefit plan.’” The court disagreed with defendants that it must interpret plan terms because the plan incorporates usual and customary rates. It stated that under Second Circuit precedent an insurance company’s promise to reimburse a physician at a usual and customary rate does “not implicate the actual coverage terms of the health plan or require a determination as to whether those terms were properly applied by Aetna.” For this reason, the court concluded that the state law claims are not within the scope of ERISA Section 502 and thus there was no preemption. Finally, the court held that the Medicare Act did not completely preempt the state law claims because “Medicare contains no civil enforcement scheme analogous to ERISA.” The court thus concluded it lacks jurisdiction over this matter and therefore granted the motion to remand.

Third Circuit

Atlantic Shore Surgical Associates v. UnitedHealth Grp., No. 23-2359 (MAS) (RLS), 2024 WL 1704696 (D.N.J. Apr. 19, 2024) (Judge Michael A. Shipp). Plaintiff Atlantic Shore Surgical Associates, a surgical treatment center in New Jersey, is suing UnitedHealth Group and its subsidiaries in order to challenge the amounts paid by United for 55 surgeries it performed on patients covered under health insurance plans underwritten and administered by United. Atlantic Shore is an out-of-network healthcare provider, meaning it does not have contracts with United establishing payment rates. Instead, Atlantic Shore sets its own fees for the treatment it provides. Atlantic Shore billed United a total of $2,404,430.51 for the surgeries, but United paid only $125,362.90 of that amount. Atlantic Shore filed this action in state court seeking the difference between the billed and paid amounts. Atlantic Shore argues that for emergency surgeries United has an implied obligation to pay a reasonable rate under New Jersey’s insurance laws, and for non-emergency surgeries it contends that it relied on United’s representations regarding preauthorization before going ahead with the procedures, and United has an obligation to honor its reimbursement agreements. United removed the case to federal court, arguing that Atlantic Shore’s claims are governed by ERISA and completely preempted. Atlantic Shore disagreed and filed a motion to remand accompanied by a request for attorneys’ fees. United simultaneously moved to dismiss the complaint. In this decision, the court concluded that Atlantic Shore’s claims are not preempted by ERISA and therefore granted the motion to remand. The fee motion and the motion to dismiss were both denied. As an initial matter, the parties agreed that Atlantic Shore had valid assignments for benefits for some but not all of the patients, meaning it had standing to bring a Section 502 ERISA claim. However, as the court noted, standing alone does not convert a state law cause of action into a federal claim automatically. Rather, what matters for preemption is whether the obligation to pay would exist independent of the ERISA plans. Here, the court was convinced it would, and that United’s obligations are not “derived from, or conditioned upon” the terms of the plan. Instead, the right to recovery here stems from state law requiring reasonable payments of emergency medical services and United’s failure to uphold its representations that it would pay reasonable rates when pre-authorizing surgeries. Essentially, the court agreed with Atlantic Shore that its claims were a classic example of a challenge to the rate of payment not the right to payment, which falls outside of ERISA’s grasp. “In short, Plaintiff seeks reimbursement from United based on state law, and the parties’ alleged course of dealing and implied contractual relationship. This Court has made clear that ERISA does not preempt these claims.” Given this holding, the court concluded it lacks jurisdiction over the action and therefore remanded the complaint back to state court. Nevertheless, the court declined to award Atlantic Shore attorneys’ fees. The court noted that federal district courts in New Jersey have cautioned United against habitually removing cases on preemption grounds where it is inappropriate to do so and have threatened fees in past decisions. However, the court ruled United had a “colorable enough” reason for removal in this case to avoid the imposition of fees.

Emami v. Aetna Life Ins. Co., No. 23-03878, 2024 WL 1715288 (D.N.J. Apr. 22, 2024) (Judge Jamel K. Semper). Dr. Arash Emami originally filed this action in state court against Aetna Life Insurance Company and the TIAA Health & Welfare Benefits Plan seeking reimbursement for surgery he performed on patient “Brian J.” Defendants removed Dr. Emami’s action to federal court, at which time he amended his complaint to assert claims under ERISA. The TIAA plan at issue has an anti-assignment provision prohibiting patients from assigning their rights to health care providers. Dr. Emami has attempted to circumvent this prohibition by asserting his claims on behalf of Brian J. pursuant to an executed power of attorney. In this decision ruling on defendants’ motion to dismiss, the court disagreed with Dr. Emami that his power of attorney was sufficient to confer standing under ERISA. The court observed that the individual who notarized the document acted “as both officer and witness.” There were other problems too. The court noted that it is Dr. Emami’s burden to prove the sufficiency of the document, and many relevant details about the power of attorney document and its execution were notably missing from the complaint. Therefore, as currently pled, the court held that Dr. Emami has not demonstrated or established that the power of attorney was sufficient to confer standing under New Jersey law. The complaint was accordingly dismissed. Dismissal was without prejudice, however, and Dr. Emami may file an amended pleading consistent with this order in an attempt to overcome the court’s identified shortcomings and demonstrate standing.

Milione v. United Healthcare, No. 23-1743 (ZNQ) (RLS), 2024 WL 1827756 (D.N.J. Apr. 26, 2024) (Judge Zahid N. Quraishi). Dr. Donald Milione is a chiropractor working in New York, New Jersey, and Connecticut. He has sued United Healthcare and OptumHealth Care Solutions LLC under ERISA for wrongful denial of benefits, breach of the fiduciary duty to act in accordance with the terms of the plan, and failure to provide a full and fair review in connection with chiropractic services he provided to six patients insured with United Healthcare plans. Defendants moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). The court granted the motion and dismissed the ERISA claims without prejudice in this order. For four of the six patients, the court agreed with United that Dr. Milione lacked standing in light of their plans’ valid and unambiguous anti-assignment provisions. Moreover, the court stated that defendants had not waived the anti-assignment clauses based on their failure to raise their existence prior to Dr. Milione filing his complaint. Accordingly, the court dismissed the claims pertaining to these four patients for lack of standing pursuant to Rule 12(b)(1). It then went on to dismiss the claims pertaining to the other two patients pursuant to Rule 12(b)(6) for failure to state a claim. The court agreed with defendants that Dr. Milione failed to refer to any plan terms entitling him to the benefit rates he sought. “As Defendants note, the Complaint ‘fails to cite a single provision from any of the ERISA-governed Plans supporting Milione’s claims or otherwise requiring reimbursement at Milione’s claimed amount.’” Thus, the court held that even viewing the complaint in the light most favorable to Dr. Milione, the complaint fails to plead plausible claims under ERISA for benefits or for breach of fiduciary duty for failure to adhere to plan terms. However, the court dismissed the complaint without prejudice, and granted Dr. Milione leave to amend within 30 days of this order. 

Retaliation Claims

Fifth Circuit

Mason v. RBC Capital Mkts., No. 4:22-cv-3454, 2024 WL 1808634 (S.D. Tex. Apr. 25, 2024) (Judge Andrew S. Hanen). Plaintiff Todd Mason sued his former employer, RBC Capital Markets, LLC (“RBC”), for retaliation and racial discrimination, including under ERISA’s anti-retaliation provision, Section 510, related to his diagnoses of heart disease and gout. RBC moved for summary judgment on all claims. Its motion was granted by the court. RBC provided evidence cutting against Mr. Mason’s allegations, including documents demonstrating that he consistently received high ratings in his performance reviews and also received salary raises and bonuses. The employer also provided convincing evidence that Mr. Mason’s termination was for cause and therefore legitimate and non-discriminatory. Specifically, RBC documented charges on a company credit card that Mr. Mason made which appeared to be personal non-business-related spending. RBC maintains that Mr. Mason was fired because he had used the corporate purchasing card for personal expenses. With regard to the ERISA claim, RBC averred it had no knowledge of Mr. Mason’s health conditions and thus argued that Mr. Mason could not meet his prima facie burden. The court agreed. Mr. Mason’s own affidavit was the sole piece of evidence he provided in response to RBC’s summary judgment motion. Relying on the affidavit alone, the court stated that it could not find a “specific discriminatory intent.” To the contrary, the court agreed with RBC that nothing Mr. Mason alleged raised a genuine issue of fact that his termination was intended to interfere with his medical benefits. For the foregoing reasons, the court granted RBC’s summary judgment motion.

Statute of Limitations

Eleventh Circuit

Unum Life Ins. Co. of Am. v. Reynolds, No. 3:23-cv-512-RAH-JTA[WO], 2024 WL 1748428 (M.D. Ala. Apr. 23, 2024) (Judge R. Austin Huffaker, Jr.). Unum Life Insurance Company of America commenced this action against defendant Donna Reynolds seeking restitution under ERISA for overpayments made to Ms. Reynolds under a group long-term disability policy. Unum alleges that Ms. Reynolds fraudulently represented information about her sources of income on disability status update forms over the years, as she failed to disclose that she had been receiving pension benefits since April 2009. Unum maintains that had it known about Ms. Reynolds’ pension income, the terms of her policy would have required her disability benefits to be offset by the amount of the pension and thus would have been substantially less. Unum claims that it has therefore overpaid Ms. Reynolds by $188,877.85, and filed this lawsuit seeking equitable relief under Section 502(a)(3), equitable restitution, and an equitable lien. Ms. Reynolds moved for judgment on the pleadings. In response to Ms. Reynolds’ motion, Unum agreed to dismiss its claims for equitable restitution and an equitable lien. Those two counts were thus dismissed, without prejudice. However, in this order the court denied the motion to dismiss the ERISA equitable relief claim on statute of limitations grounds. The court disagreed with Ms. Reynolds that the complaint was untimely under either the three-year statute of limitations set forth in the policy or under Alabama’s six-year statute of limitations for analogous contract claims. Regarding the three-year statute in the policy, the court agreed with Unum that the relevant provision applied only to benefit claims made by Ms. Reynolds, i.e., “you.” Accordingly, the court stated that Ms. Reynolds was not entitled to dismissal of the case under the policy’s limitation. The court further held that the complaint sufficiently pled fraudulent concealment to toll the six-year statute of limitations. “As the Complaint makes clear, on no fewer than four occasions, Reynolds certified in writing that she was not receiving pension benefits when in fact she was and that Unum relied upon these certifications in making payments under the policy. That is enough to plead a plausible fraudulent concealment theory to invoke tolling, at least at this stage.” Thus, Unum’s Section 502(a)(3) claim against Ms. Reynolds will proceed.

Seguro Medico, LLC v. Suffolk Admin. Servs., No. 5:23-cv-2495, 2024 WL 1621343 (E.D. Pa. Apr. 15, 2024) (Judge Joseph F. Leeson, Jr.)

There’s a lot happening with healthcare right now. This week’s notable decision touches on several issues worth paying attention to, including healthcare data mining, “junk” health insurance plans, and health plan marketing practices.

Interestingly, the case is not at heart an ERISA case, although it presents ERISA preemption issues and involves healthcare plans that are potentially governed by ERISA. The parties are a healthcare enrollment center/insurance broker (plaintiff Quick Health), a data-mining company (defendant Data Marketing Partnership), a group of healthcare plans (defendant Providence Plans), and the sponsors and administrators of those plans (defendants Hawaii Mainland Administrators, LLC and Suffolk Administrative Services, LLC).

The parties were players in a complicated scheme to bring group health plans to market. Their business relationships soured and this litigation arose after participants of the plans became unhappy with their coverage and cancelled their insurance. According to Quick Health’s complaint, defendants banded together to unfairly lay the blame on Quick Health for the breakdown of the arrangement. In its suit, Quick Health is seeking to recover the financial losses it incurred from defendants’ representations.

A little background information is helpful in order to understand the parties’ interconnected relationships and their endeavors to bring the Providence Plans to market. Defendant Data Marketing Partnership has what the court describes as “a unique business model,” offering lower cost health insurance coverage in exchange for agreements by the participants to track their internet and cellphone data. The data is then aggregated and sold to marketing firms and group health insurance plans. This data-for-health insurance scheme requires individuals to join a limited non-equity “partnership” with the company and download proprietary tracking software on personal devices in order to purchase group health insurance through plans such as Providence.

Quick Health acted as the health insurance broker, selling and facilitating the purchases of insurance by the “limited partners” through the Providence Plans by collecting the healthcare data from Data Marketing Partnership at a price and then transferring premium funds to a third-party administrator which handled premium payments. Quick Health earned a commission on these transactions. From there, the customer enrollment data and premium payments were sent to the claims administrator and the plan sponsor.

Among the problems with this scheme was that Quick Health sold bad insurance products. Customers, the ostensible “partners,” began complaining that the plans they had enrolled in were risky “junk” healthcare plans, which provided very skimpy and in some cases no coverage. The participants of these plans were not afforded the protections or basic coverage of the Affordable Care Act and ended up on the hook for costly medical bills. Some complained that their premiums were not even forwarded and paid, which resulted in lapses in coverage. Others complained their claims were never processed and that coverage was illusory. As the problems intensified, the plan participants were understandably frustrated with what they had bought.

In response to these complaints, the administrators of the plans informed the participants that Quick Health was to blame. One told customers that “Quick Health was a scam, filed bankruptcy every two years, sold junk plans and were taking customer’s [sic] money and not giving them a plan.” Ultimately defendants walked back these statements implying Quick Health had defrauded its customers, but by then more than 6,200 of the customers had cancelled their Providence Plans purchased through Data Marketing Partnership and Quick Health, resulting in millions in lost profits for the companies.

In this action, Quick Health asserts state law claims for breach of implied contract, promissory estoppel, defamation, and commercial disparagement. Defendants moved to dismiss, arguing that Quick Health failed to state claims, that its claims are preempted by ERISA, and that the court lacks jurisdiction over Data Marketing Partnership.

The court began by assessing the sufficiency of the stated claims. First, the court dismissed the breach of implied contract count. The court concluded that because Quick Health’s implied contract allegations were based on the terms of the plans, it could not sue because it was not a party to or a third-party beneficiary of those plans.

Second, the court analyzed the promissory estoppel claim and concluded that defendants’ alleged promise to provide regular accounting to Quick Health was definite enough to determine the existence of a broken promise. The court therefore declined to dismiss the count.

As for the defamation claim, the court dismissed it as asserted against Suffolk Administrative Services, but not against Hawaii Mainland Administrators. The court distinguished the two defendants because the complaint alleged only that Hawaii Mainland Administrators told customers that Quick Health was running a scam. The court found that the statements the complaint attributed to Suffolk were not “capable of defamatory meaning.”

Finally, the court declined to dismiss Quick Health’s commercial disparagement claim, which the court understood as alleging defendants wrongly attributed the lapses in coverage and denials of benefits to Quick Health, despite the fact that Quick Health alleged that its role was limited to passing enrollment data and payment information to the third-party administrators. The court was satisfied this was enough to state a claim for commercial disparagement.

With its task of reviewing the sufficiency of the claims finished, the court moved on to addressing whether it had personal jurisdiction over Data Marketing Partnership. Data Marketing Partnership argued that the court lacked jurisdiction over it because it is not incorporated in Pennsylvania, does not conduct business in the state, and has no relationship to the Providence Plans. The court ultimately deferred resolution of this issue until jurisdictional discovery concludes.

Finally, the decision found its way to the ERISA preemption issues. Defendants directed the court to a related case that Data Marketing Partnership brought against the Department of Labor in which a district court in Texas ruled in 2020 that its plans were governed by ERISA. Data Mktg. P’ship LP v. United States Dep’t of Labor, 490 F. Supp. 3d 1048 (N.D. Tex. 2020). In that case, Data Marketing Partnership challenged the Department’s advisory opinion that the program was not governed by ERISA. The district court in Texas ruled that the Department of Labor was arbitrary in issuing its advisory opinion.

As the court in this case noted, however, the Texas court’s decision was reversed in part by the Fifth Circuit, which remanded to the district court in 2022 to consider whether the “limited partners” were working owners or bona-fide partners within the meaning of ERISA. (That case is still pending.) In the court’s view in this case, the defendants’ preemption arguments improperly presupposed that the underlying Providence Plans were without doubt ERISA plans. But, according to the court, this was not clear from the face of the complaint. Whether the Plans are ERISA-governed plans, the court stressed, is a question of fact not properly resolved at this juncture. 

The court’s decision therefore left most of Quick Health’s complaint intact when all was said and done. But more than that, the decision also offered an interesting peek behind the scenes into the inner workings of a game created by some of healthcare’s slickest players. Any way you slice it, the scheme cooked up by the parties in this action was a lousy proposition for individuals who needed health insurance – sell us your data and we’ll give you deficient or even illusory coverage. Even Faust got a better deal than that.

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

Attorneys’ Fees

Second Circuit

Carrigan v. Xerox Corp., No. 3:21-CV-1085 (SVN), 2024 WL 1639535 (D. Conn. Apr. 16, 2024) (Judge Sarala V. Nagala). On February 6, 2024 the court gave its final approval of a $4.1 million settlement in this breach of fiduciary duty action brought on behalf of the employees of the Xerox Corporation. All that was left for the court to do was to determine the proper compensation for class counsel and class representatives, and to assess reimbursement amounts for expenses. These figures were addressed and resolved in the present decision. Class counsel, the law firms of Nicholas Kaster, PLLP and Garrison, Levin-Epstein, Fitzgerald & Pirrotti, P.C., sought attorneys’ fees in the amount of one-third of the settlement fund ($1,366,666). In addition, they moved for reimbursement of $48,980.72 in litigation expenses, $106,895.23 in settlement administration expenses, and $5,000 in service awards for each of the three class representatives. The court awarded the litigation expenses, settlement administration expenses, and service awards in the full requested amounts. For attorneys’ fees, however, it was the opinion of the court that 25% of the settlement fund ($1,025,000) was an appropriate award. The court reached this figure using a three-step approach. In step one the court determined that fees representing one fourth of a settlement fund was a reasonable baseline to other common fund settlements in similarly sized complex ERISA litigation matters. In the second step the court analyzed the risk of litigation, quality of representation, and public policy concerns, and concluded that none of these factors warranted deviating from the standard. Although the court acknowledged that ERISA actions are risky and complex, it stated that it had already accounted for these factors when comparing settlements to the 25% baseline. The court also took time to acknowledge the quality of class counsel’s work, and their expertise, but again stated that this factor did not necessitate diverging from the baseline. As for public policy concerns, the court was satisfied that an award equaling 25% of the fund would fairly compensate the attorneys and encourage private civil enforcement in pension cases. Finally, in the third step, the court applied the lodestar method to cross-check the reasonableness of the percentage-based fee award. To reach a lodestar, the court accepted in whole counsel’s 839.4 billable hours but reduced significantly their typical hourly rates. Counsel presented billing rates ranging from $725 to $950 per hour for senior attorneys, $425 to $500 per hour for less experienced attorneys, and $250 per hour for support staff. The court held that these rates were out of line for attorneys practicing ERISA litigation in Connecticut. As a result, it significantly reduced the hourly rates to $400 per hour for senior attorneys, $250 per hour for more junior associates, and $150 per hour for support staff, and then calculated a lodestar based on these new inputs. This resulted in a lodestar equaling $231,750. With a 25% fee award, the multiplier of the court’s lodestar was 4.423, which it felt confirmed the reasonableness of the underlying amount. Accordingly, the court felt satisfied that steps two and three warranted no adjustment from the norm and therefore awarded a one-fourth attorneys’ fee award to class counsel.

Breach of Fiduciary Duty

First Circuit

Brookins v. Northeastern Univ., No. 22-11053-NMG, 2024 WL 1659507 (D. Mass. Apr. 17, 2024) (Judge Nathaniel M. Gorton). A participant of the Northeastern University 403(b) Retirement Plan has sued the university and the plan’s investment committee on behalf of himself and a putative class of plan participants to challenge the management of the plan. The complaint alleges that defendants acted imprudently by failing to control excessive recordkeeping and investment management fees, investing in costlier retail share classes of funds, investing in and retaining underperforming target date and real estate funds, and maintaining TIAA as a plan custodian after the Securities and Exchange Commission and New York attorney general joint investigation into TIAA revealed that TIAA engaged in deceptive marketing practices to cross-sell services to clients in TIAA-administered ERISA-governed retirement plans. In addition to allegations of imprudence, plaintiff alleges that Northwestern violated its duty to monitor plan fiduciaries. Defendants filed a motion to dismiss for failure to state claims. At the outset, the court rejected the so-called “meaningful benchmark” standard at the motion to dismiss stage. “To engage in meaningful benchmark analysis, this Court would be required to consider the merits substantively in a manner that would conflict with the Court’s obligation to draw all reasonable inferences in favor of the plaintiff.” The court therefore stressed its opposition to factfinding at the motion to dismiss stage. Moreover, the court was cognizant of the fact that ERISA plaintiffs do not have access to critical non-public data when they file their complaints, and that this information remains for the time being within defendants’ possession, putting the parties in unequal positions at this early stage of litigation. Applying these principles, the court looked to what plaintiff was alleging: that defendants failed to conduct requests for proposals, that the revenue sharing fee model was resulting in excessive fees, that funds were chronically underperforming, and that there were identical cheaper class shares available for funds that defendants failed to take advantage of, all to the detriment of plan participants. The court concluded that this circumstantial evidence led to a plausible inference of wrongdoing. Accordingly, the court denied the motion to dismiss the breach of prudence and monitoring claims related to the challenged fees and funds. The decision was not a complete victory for the plaintiff, though, as the court did dismiss one aspect of his complaint: “the Court will allow the motion to dismiss to the extent that plaintiff seeks to hold defendants liable for maintaining TIAA as a custodian in light of the investigation.” The court reached this conclusion because the plaintiff did not allege that any cross-selling occurred to him or any other plan participant. As a result, the court stated that the complaint failed to allege a plausible connection between the governmental investigation and TIAA as a custodian of the Northeastern University plan. In all other respects, the motion to dismiss was denied.

Daggett v. Waters Corp., No. 23-11527-JGD, __ F. Supp. 3d __, 2024 WL 1677421 (D. Mass. Apr. 18, 2024) (Magistrate Judge Judith Gail Dein). This decision is a nice companion to the Northeastern University case above. Here, another district court in the District of Massachusetts has declined to adopt a strict pleading standard unique to ERISA breach of fiduciary duty actions. The plan participant in this case is David Daggett, the plan is the Waters Employee Investment 401(k) Plan, and the defendants are the Waters Technologies Corporation, its board of directors, and its benefits administration committee. Mr. Daggett alleges in his putative class action complaint that the fiduciaries of the Waters Plan breached their duties of prudence and monitoring by failing to shop around and consider third-party options other than Fidelity to operate the plan’s recordkeeping and administration. Maintaining Fidelity throughout the class period caused recordkeeping and administrative operating expenses to balloon. Mr. Daggett estimates that the plan overpaid a total minimum amount of $1,327,297 between 2017 and 2022 in unreasonable fees. Mr. Daggett further alleges that this estimated figure does not take into account compounding percentages and lost market investment opportunities, which would push the figure “in excess of $1,958,407 in total RKA fees.” In addition, Mr. Daggett avers that even more financial harm was done to participants because the fiduciaries improperly maintained an underperforming actively managed suite of Fidelity Freeform Funds in the plan for over twelve years, depriving plan participants of millions of dollars of higher returns on their investments. In sum, Mr. Daggett argues that the Plan, with $1.219 billion in assets, had an obligation to leverage its size and power in the marketplace to ensure fees paid and funds invested in were prudent and reasonable and that the fiduciaries in charge of the plan failed in their duties to do so. Those fiduciaries disagreed and moved for dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6). In their motion, and in the over 350 pages of attached exhibits they included, the fiduciaries interpreted the investment performance reports, plan documents, and annual disclosures differently from Mr. Daggett and offered their own explanations for why their choices were sound. The court declined defendants’ offer to favor their explanations over Mr. Daggett’s at this early stage, and instead read the allegations and material favorably to the non-moving party. In doing so, the court was satisfied that Mr. Daggett’s theories of wrongdoing were well-pleaded and “present a plausible narrative of imprudence.” Accordingly, defendants’ motion to dismiss was denied in its entirety. The decision boiled down to this: arguments on the merits “are better suited for discussion after further development of the record.”

Ninth Circuit

Construction Laborers Pension Tr. for S. Cal. v. Meketa Inv. Grp., No. 2:23-cv-07726-CAS (PVCx), 2024 WL 1656261 (C.D. Cal. Apr. 15, 2024) (Judge Christina A. Snyder). A Taft-Hartley pension fund, the Construction Laborers Pension Trust for Southern California, and its Board of Trustees filed this action against Meketa Investment Group, Inc. and its managing principal, Judy Chambers. Plaintiffs asserted breach of fiduciary claims under ERISA, as well as state law breach of contract and breach of fiduciary duty claims pled in the alternative. In their complaint, the trustees allege that Meketa and Ms. Chambers violated ERISA and the terms of their limited partnership agreement by convincing the plan to invest tens of millions of dollars in Onset Capital Partners, LLC, a brand-new investment management company directly created by Ms. Chambers and her friend from business school. Plaintiffs maintain that they did not know of Ms. Chambers’ connection to Onset, nor other relevant information about the company which would have affected their decision-making. According to plaintiffs, Onset mismanaged the plan assets it was tasked with investing by failing to do basic due diligence. The trustees fault Maketa and Ms. Chambers for failing to supervise Onset, providing misleading data about the performance of the investments under Onset’s management, and failing to remove the firm after repeated violations of investment policy. Through these failures, plaintiffs contend that the plan has “suffered large, avoidable losses.” Defendants moved for dismissal. It was their position that (1) the claims were untimely under ERISA’s six-year statute of repose; (2) they did not breach any fiduciary duty in recommending Onset; (3) Onset was not required to comply with the investment policy under either ERISA or the terms of their partnership; (4) the trust and trustees lack standing under ERISA, and (5) ERISA preempts the state law claims. In this decision the court considered the impact of ERISA’s statute of limitations, tested the sufficiency of the asserted claims, and addressed standing and preemption. First, the court agreed in part with defendants that aspects of plaintiffs’ allegations of fiduciary mismanagement were untimely. “Based on the parties’ agreement that March 2, 2016 is the last date on which claims could accrue that fall within both the statute of limitations and the confines of the 2023 Tolling Agreements, the Court concludes that statements made and conduct by defendants earlier than March 2, 2016 are barred by the statute of limitations, unless tolling applies.” It then determined that tolling was not appropriate given that the basis for fraud and concealment were the underlying facts constituting the claim for the fiduciary breach, and the Ninth Circuit does not allow “the exception [to] swallow the rule.” However, the court was satisfied that plaintiffs had standing to sue under ERISA and that they sufficiently pled the remainder of their ERISA breach of fiduciary duty claim for actions which occurred after March 2, 2016. As for the state law claims, the court agreed once again with defendants. It found all three of plaintiffs’ non-ERISA claims preempted, as they concern an ERISA-regulated relationship between the plan and defendants in their capacity as ERISA fiduciaries of the pension fund.

Disability Benefit Claims

Ninth Circuit

Roeder v. Guardian Life Ins. Co., No. 22-56226, __ F. App’x __, 2024 WL 1612256 (9th Cir. Apr. 15, 2024) (Before Circuit Judges Rawlinson, Melloy, and Thomas). Plaintiff-appellant Jacqueline Roeder sued Guardian Life Insurance Company after her claim for long-term disability benefits under an ERISA-governed policy was denied pursuant to the plan’s pre-existing conditions exclusion. Ms. Roeder became disabled in 2020 from a degenerative cervical spine condition. Her policy excludes coverage for any disability presenting during the first year of employment if the claimant suffered from those same symptoms during a three-month look-back period. In reviewing Ms. Roeder’s claim, Guardian examined the fall and winter of 2019 and 2020 and denied coverage based on medical records from a January 2020 urgent care visit where Ms. Roeder complained of neck pain. The district court reviewed the denial de novo and found that although Ms. Roeder’s degenerative cervical spine condition was not diagnosed during the look-back period, it was the undiagnosed cause of the neck pain symptoms for which she sought medical care during that time. Thus, the district court upheld the denial. On appeal Ms. Roeder argued that the district court erred because the urgent care visit did not demonstrate a specific diagnosis. She maintained that her neck pain may have been related to an acute infection she had at the time which she was treating with antibiotics. According to Ms. Roeder, the record as a whole failed to prove that her neck pain in early 2020 was related or caused by her later-diagnosed spine condition. The Ninth Circuit found Ms. Roeder’s arguments unavailing. It determined that the lower court’s factfinding was not clearly erroneous because the exclusion did not require a diagnosis during the look-back period, and was instead “framed in terms of symptoms for which a prudent person would seek treatment.” While the Ninth Circuit agreed with Ms. Roeder that the medical records from the urgent care visit weren’t “a model of clarity,” it nevertheless viewed the district court’s conclusion that the neck pain was caused by the later-diagnosed degenerative cervical spine condition as a permissible and reasonable interpretation of the evidence. For these reasons, the court of appeals upheld the district court’s rulings and affirmed.

Life Insurance & AD&D Benefit Claims

Eleventh Circuit

Morales v. CoAdvantage Corp., No. 6:24-cv-117-JA-DCI, 2024 WL 1678250 (M.D. Fla. Apr. 18, 2024) (Judge Mark A. Goldsmith). A widow and her children, the survivors of Francisco Estrada, sued Mr. Estrada’s former employers, CoAdvantage Corporation and CoAdvantage Resources, Inc., and the insurer of his life insurance policy, Unum Life Insurance Company of America, for failure to pay life insurance and accidental death and dismemberment (“AD&D”) benefits under ERISA Section 502(a)(1)(B), and for breach of fiduciary duty under Section 502(a)(3). The family alleges that Mr. Estrada was insured under a life insurance and AD&D policy in the amount of $250,000, under which they were the beneficiaries. They maintain that Mr. Estrada paid monthly premiums on this policy. In their complaint the family included a benefit confirmation statement which names the ERISA plan as the CoAdvantage Resources, Inc. Welfare Benefit Plan, identifies the plan administrator as CoAdvantage Resources, and states that the plan is funded and insured by Unum. In sum, the attached document supported the family’s assertions that Mr. Estrada was covered under the policy. Nevertheless, plaintiffs’ claim for benefits was denied on the ground that Mr. Estrada was never insured. Before the court was defendants’ motion to dismiss. They argued that (1) CoAdvantage Corporation is not a proper party to this action; (2) Unum did not owe fiduciary duties as it was not the plan administrator; (3) plaintiffs failed to allege facts to reasonably suggest that a policy was issued to Mr. Estrada; and (4) the breach of fiduciary duty claim is duplicative of the failure to pay claim as they both seek to recover benefits due under the plan. The court addressed each of these issues. First, the court held that the complaint plausibly alleges that Unum issued a life insurance policy to Mr. Estrada. It therefore denied the motion to dismiss the claim for benefits under Section 502(a)(1)(B). Next, the court addressed CoAdvantage Corporation’s motion seeking dismissal as a party. Plaintiffs consented to this motion, but requested that the court dismiss the company without prejudice should discovery uncover that it functioned as a fiduciary and played some role in the harm alleged. The court did as plaintiffs requested, dismissing CoAdvantage Corp. without prejudice. “Given the business relationship between CoAdvantage Corp. and the plan’s designated administrator, CoAdvantage Resources, the Court is not convinced that Plaintiffs could not add facts to their complaint to make plausible that CoAdvantage Corp. oversaw the plan’s administrator.” The decision then considered the breach of fiduciary duty claim, which it dismissed. This ruling was premised on the fact that plaintiffs alleged that a valid life insurance policy existed “and incorporate these allegations into every count.” The court was careful to dismiss the fiduciary breach claim without prejudice, however, “because Plaintiffs could rewrite the breach-of-fiduciary-duty counts consistent with the nonexistence of a valid policy and bring counts in the alterative.” Assuming plaintiffs are likely to heed this advice and rework their fiduciary breach claim, the court went on to address defendants’ remaining arguments. The court rejected defendants’ argument that plaintiffs cannot recover the value of benefits due under the plan through a claim under Section 502(a)(3). To the contrary, the Eleventh Circuit has found that beneficiaries may seek monetary relief equivalent to lost benefits under Section 1132(a)(3) under just the scenario alleged here (which readers of Your ERISA Watch know happens routinely). Moreover, the court disagreed with Unum that the family failed to allege fiduciary duties with respect to Unum. The court was offended by the notion that insurance companies could sit back and collect premiums without investigating the source of the premium payments, all while avoiding fiduciary responsibility. Thus, the court stated it would not permit Unum to “rely on a compartmentalized system to escape responsibilities,” and wrote that it would not dismiss the fiduciary duty claim against Unum based on a failure to allege Unum’s fiduciary duties. Accordingly, the motion to dismiss was granted in part as outlined above. However, the family may amend their complaint to address these shortcomings and shore up alternative paths to recovery and restitution.

Pension Benefit Claims

Fifth Circuit

Lavergne v. Westlake Corp., No. 2:23-CV-00941, 2024 WL 1664757 (W.D. La. Apr. 17, 2024) (Judge James D. Cain, Jr.). Widow Sylvia Thibodeaux sued her late husband’s former employer, the Westlake Corporation, in state court alleging she was wrongly denied post-retirement death benefits as the surviving spouse. Westlake removed the suit to federal court and showed that the plan at issue was established pursuant to ERISA. The court then issued an ERISA case order, and subsequently ordered briefing from the parties. Ms. Lavergne has not filed a motion or memorandum, and the time to do so pursuant to the court’s order has passed. Now Westlake has moved for judgment in its favor based on a review of the administrative record and requested attorneys’ fees and costs. In this decision the court granted judgment in favor of Westlake but denied its fee motion. Applying abuse of discretion review, the court reviewed an unambiguous form presented by defendant, which Ms. Lavergne signed, waiving the qualified joint and survivor annuity benefit. The waiver provided that as a surviving spouse Ms. Lavergne would “not receive a surviving spouse benefit from the pension plan upon the death of the applicant,” and in exchange Mr. Lavergne was paid a higher pension during his lifetime. In the absence of evidence that the waiver was completed by anyone other than the couple, the court concluded that the decision to deny surviving spouse pension benefits was legally correct and not an abuse of discretion. Nevertheless, the court was unwilling to award Westlake attorneys’ fees, as Ms. Lavergne “is an elderly widow who appears to be of limited means,” without any pattern of filing lawsuits with frivolous claims. On the other hand, Westlake was “not significantly inconvenienced in defending this claim.” For these reasons, the court did not find a fee award appropriate and ordered each party to bear its own costs.

Pleading Issues & Procedure

Eighth Circuit

Dickson v. AT&T Umbrella Benefit Sedgwick Claims Mgmt. Servs., No. 4:23-cv-00456-DGK, 2024 WL 1624698 (W.D. Mo. Apr. 15, 2024) (Judge Greg Kays). Plaintiff Kevin Dickson sued his ERISA-governed disability benefit plan, the AT&T Umbrella Benefit Plan No. 3, and its claims administrator, Sedgwick Claims Management Services, Inc., for wrongful denial of benefits and breach of fiduciary duty. Defendants moved for dismissal. They argued the denial of benefits claim could only be asserted against the plan, not defendant Sedgwick. In addition, defendants argued for dismissal of the fiduciary breach claim because the Eighth Circuit bars ERISA plaintiffs from obtaining duplicative recoveries. Finding both arguments unavailing, the court denied the motion to dismiss. To start, the court agreed with Mr. Dickson that Sedgwick was a proper defendant in the Section 502(a)(1)(B) wrongful denial of benefits claim because the complaint alleges Sedgwick had discretion to determine benefit eligibility. Next, the court found the fiduciary breach claim was not duplicative of the claim for benefits as the two claims “make meaningfully different factual allegations.” The complaint outlines that defendants breached their fiduciary duties by failing to comply with internal procedures, operating under a conflict of interest, ignoring medical and vocational evidence, and by failing to produce a complete copy of the claim file. The court stated that these allegations were fundamentally different from the benefits claim which alleges that the denial was not based on substantial evidence rendering it arbitrary and capricious. Furthermore, the court ruled that plaintiff’s two counts were seeking different forms of relief. As a result, the court determined that the allegations as pled were sufficient to survive the motion to dismiss.

Severance Benefit Claims

Eighth Circuit

Williams v. Ascension Med. Group-Se. Wis., No. 4:23-cv-01155-AGF, 2024 WL 1655411 (E.D. Mo. Apr. 17, 2024) (Judge Audrey G. Fleissig). Plaintiff O’Rell R. Williams worked as a physician at St. Joseph Hospital from 2008 to 2022. For the last six years of his employment Mr. Williams worked under Ascension Medical Group, which acquired the hospital in 2015. His employment ended in August of 2022 when Ascension closed St. Joseph. The closure of the hospital was part of Ascension’s private equity strategy. (According to a STAT health news investigation, Ascension, America’s largest Catholic hospital system, has built a private equity operation worth over a billion dollars.) Mr. Williams filed this civil action against Ascension for severance benefits and bonuses promised under various ERISA and non-ERISA plans and agreements. The action was originally filed in state court in Wisconsin. However, Ascension removed the action to federal court arguing that the state law causes of action were preempted by ERISA and the federal court had subject matter jurisdiction over the case. Ascension has since moved for dismissal of the complaint for failure to state a claim. It argued that to the extent Mr. Williams seeks severance benefits, the state law claims are preempted by ERISA, and to the extent he seeks bonuses under the Short-Term At-Risk Compensation Plan (“STARP”), those claims are not preempted by ERISA but are nevertheless insufficiently pled. Mr. Williams opposed the motion and separately moved for leave to amend his complaint. In this order the court granted in part and denied in part the motion to dismiss. The court dismissed the severance claims, which it agreed were preempted by ERISA. It held that all promises of severance benefits either came directly from the terms of the ERISA-governed severance plan or from either the Employment Agreement or the Workforce Transition Position Elimination Policy, both of which explicitly premise any promise of severance benefits on the applicable ERISA benefit plan. Therefore, the court agreed with Ascension that it has subject matter jurisdiction over the severance benefit claims as they are completely preempted. These state law claims were thus dismissed. However, the court denied the motion to dismiss the STARP bonus claims. Nevertheless, the court declined to exercise supplemental jurisdiction over the STARP claims, and chose instead to remand that portion of Mr. Williams’ action to state court. Finally, the court denied the motion for leave to amend, but did so without prejudice, should Mr. Williams wish to amend his complaint in light of these rulings to assert ERISA severance benefit claims, or should he wish to amend his bonus claims in state court. Accordingly, the court’s ruling left Mr. Williams with avenues with which to pursue both his claims for severance benefits and his claims for bonuses.

Withdrawal Liability & Unpaid Contributions

Second Circuit

Dycom Indus. v. Pension, Hospitalization & Benefit Plan of the Elec. Indus., No. 23-647-cv, __ F.4th __, 2024 WL 1608657 (2d Cir. Apr. 15, 2024) (Before Circuit Judges Sack, Bianco, and Park). Dycom Industries, Inc. and its predecessor Midtown Express, LLC were contractors whose employees installed, serviced, and disconnected telecommunications cables for cable, television, internet, and phone services. Midtown entered into collective bargaining agreements with Local Union No. 3 of the International Brotherhood of Electrical Workers, and was required to contribute to the electrician union’s Pension, Hospitalization & Benefit Plan. When Midtown permanently shut down its operations, it notified the plan that it would cease making contributions. In response, the fund notified Midtown that its dissolution constituted a complete withdrawal under ERISA and assessed a withdrawal liability against Midtown and its successor, Dycom. Dycom demanded arbitration, arguing that it qualified for an exemption from withdrawal liability under 29 U.S.C. § 1383(b) because substantially all of its employees were performing work in the building and construction industry. The arbitrator disagreed. The arbitrator concluded that Midtown’s employees “worked almost exclusively in existing buildings that were prewired for their purposes” and that the employees mostly did not make “repairs and/or alterations to an existing building or other structures.” Accordingly, the arbitrator found Midtown and Dycom did not qualify for the exemption and therefore upheld the withdrawal liability assessment. Dycom sued to vacate the arbitrator’s award. The magistrate judge issued a report and recommendation agreeing with the conclusions of the arbitrator, to which Dycom objected. Its objections were overruled by the district court, which adopted the magistrate’s report and confirmed the arbitrator’s award. Dycom appealed to the Second Circuit. In this published per curiam decision the Second Circuit made swift work affirming the district court’s ruling. It agreed with all the fact-finders below – the arbitrator, the magistrate judge, and the district court judge – that the work performed by Midtown’s employees was not in the building and construction industry and Midtown and Dycom were not exempt from withdrawal liability. The Second Circuit applied the definition of “building and construction industry” used by the National Labor Relations Board for the purposes of the Taft-Hartley Act, which provides that building and construction involves “the provision of labor whereby materials and constituent parts may be combined on the building site to form, make or build a structure.” Using that definition, the appeals court concluded that the arbitrator correctly determined that “‘Midtown almost never worked on new construction projects,’ but rather ‘provided cable service for homes or apartment houses that were prewired for that service.’” The Second Circuit determined that these duties were not consistent with the concept of making or building a structure, and the exemption thus was not applicable. Finally, the court of appeals rejected Dycom’s use of an economic non-labor law source to support its classification of cable installation contractors as a building and construction industry job. “We find this non-labor law source, which classifies economic activities for statistical purposes completely unrelated to the purpose of the exemption at issue here, not to be dispositive as to the scope of the building and construction exemption under Section 1383(b).” For the foregoing reasons, the court of appeals concluded that Midtown’s work did not qualify for the exemption and therefore affirmed the judgment of the district court.

Ryan S. v. UnitedHealth Grp., No. 22-55761, __ F. 4th __, 2024 WL 1561668 (9th Cir. Apr. 11, 2024) (Before Circuit Judges Clifton and Sanchez and District Judge Edward R. Korman)

ERISA does not require employers to offer health insurance to their employees. If they do, however, they must comply with a host of requirements. Many people are familiar with COBRA and HIPAA, but fewer are aware of the requirements embodied in the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (the “Parity Act”) and its implementing regulations. This law provides that any limitations on benefits for mental health or substance use disorder (“MH/SUD”) treatment must be “no more restrictive” than limitations on benefits for medical and surgical treatment.

In enacting the Parity Act, Congress clearly recognized that MH/SUD claims were being treated less favorably than medical/surgical claims and that as a result patients were being denied access to necessary treatment. It passed the Parity Act and incorporated its provisions into ERISA with the intention of addressing and ameliorating discriminatory insurance practices. Unfortunately, sixteen years later, despite the passage of the Parity Act, the unfairness targeted by it still exists. All too often patients seeking MH/SUD treatment still find barriers to getting their benefit plans to pay for that treatment.

There are numerous reasons why, but one important obstacle is the Parity Act itself. The courts have struggled to interpret and enforce the Parity Act’s broad language. Some parity violations are easy to spot, such as higher costs or fewer allowed visits for mental health services. But other violations are more difficult to identify – Parity Act regulations call these “Non-Quantitative Treatment Limitations,” or NQTLs – and the courts have had difficulty articulating legal standards for evaluating them. As a result, plaintiffs have often been left wondering what they need to do to properly plead a violation.

In this week’s notable decision, the Ninth Circuit offered a bit of needed guidance, crafting a new pleading standard and reviving for the second time a putative class action against UnitedHealthcare.

The named plaintiff in the action is Ryan S., a resident of California and a participant in an ERISA healthcare benefit plan insured, administered, and managed by United. Ryan received substance use disorder treatment from 2017-19, but when he submitted claims to United for this treatment, United mostly denied them. Ryan was variously told that his claims were not payable because “no documentation was submitted,” “your plan does not cover the services you received,” or “the information submitted does not contain sufficient detail.”

Ryan suspected something fishy was going on, and he was not the only one. During this same period, the California Department of Managed Health Care (“DMHC”) began investigating United’s claims handling. The agency uncovered the existence of United’s ominous-sounding Algorithms for Effective Reporting and Treatment, or ALERT, which United used as an additional layer of scrutiny in processing MH/SUD claims. A report issued by the DMHC in 2018 concluded that ALERT was applied solely to MH/SUD claims, and that no comparable additional review process was used in evaluating medical/surgical claims.

Armed with this report, Ryan sued UnitedHealth Group, Inc. and eight of its wholly owned subsidiaries on behalf of a group of similarly situated individuals alleging claims under ERISA and seeking relief under Section 502(a)(3). Specifically, Ryan alleged that United violated three of ERISA’s requirements: (1) the Parity Act; (2) the fiduciary duty of loyalty; and (3) the duty to follow contractual terms of ERISA-governed plans.

Given the difficulty courts have had with the Parity Act, you will not be surprised to learn that even though Ryan filed his suit in 2019, the case is still stuck in the pleading stage. First, the district court dismissed Ryan’s complaint for lack of standing. Ryan appealed, and the Ninth Circuit reversed, holding Ryan had standing to pursue claims based on United’s practices of refusing to cover outpatient MH/SUD treatment, refusing to pay for auxiliary treatments, and refusing to cover laboratory claims. (This decision was one of Your ERISA Watch’s cases of the week in our March 30, 2022 edition.)

On remand, United renewed its motion to dismiss, this time arguing that Ryan could not state a claim under Federal Rule of Civil Procedure 12(b)(6). Once again, the district court granted United’s motion. It concluded that Ryan failed to allege that his claims had been “categorically” denied and that he had insufficiently identified analogous medical or surgical claims that he had personally submitted which were processed more favorably.

Ryan appealed for a second time, and in this published opinion the Ninth Circuit again reversed. The court addressed Ryan’s three claims for relief in order, and thus began with the Parity Act. It opened with an apology for the state of Parity Act jurisprudence. The court acknowledged that its guidance in this area was “limited,” there was “no clear law” on how to plead a Parity Act violation, and district courts had been forced to “improvis[e]…often with inconsistent results.”

The Ninth Circuit attempted to rectify the situation by identifying three distinct types of Parity Act violations, which it called “facial exclusions,” “as-applied” violations, and “internal process” violations. In the first category, a plaintiff alleges a plan exclusion “is discriminatory on its face.” In the second category, a plan might contain a facially neutral term, but an administrator would violate parity by applying it in a discriminatory manner. In the last category, a plan administrator would violate parity by using “an improper internal process that results in the exclusion” of some mental health treatment.

The Ninth Circuit noted that the third, “internal process” violation was what Ryan was alleging in this action, and endeavored to outline the pleading requirements for such a claim. The court began by clarifying that Ryan did not need to allege a categorical denial practice, or the “uniform denial of his benefits,” which the district court appeared to require. Simply handling MH/SUD claims more stringently constitutes a Parity Act violation, regardless of whether it leads to uniform denial decisions.

The Ninth Circuit further held that Parity Act claimants need not “identify an analogous category of claims with precision.” While the court acknowledged that the concept of parity requires some comparison between MH/SUD claims and medical/surgical claims, it ruled that “the plaintiff can define that analogous category quite broadly.” The Parity Act only requires a comparison between treatment “within the same ‘classification’ – in this case, outpatient, out-of-network treatment.” Thus, “[a]ny other medical/surgical treatment within that classification can be a sufficient comparator.”

Importantly, the Ninth Circuit also observed that Parity Act plaintiffs suffer from an asymmetry of information. After all, MH/SUD patients typically have not received analogous medical/surgical treatment in a similar classification, and thus “would have no basis to determine the process used for those analogous claims.” Thus, plaintiffs alleging an improper internal process “need not specify the different process that allegedly applies to the analogous category of medical/surgical benefits.” Instead, the plaintiff only needs to allege facts sufficient to suggest that the challenged process is specific to MH/SUD claims.

This, of course, is more easily said than done. “Simply alleging the denial of a plaintiff’s claims for behavioral health benefits is unlikely by itself to support a plausible inference that a defendant employed policies in violation of the Parity Act.” Ryan’s complaint did not suffer from this flaw, however, because he “pleads something more.” Specifically, Ryan’s complaint included allegations regarding the DMHC’s investigation into United’s ALERT system, which United had conceded it only applied to MH/SUD claims. The court stressed that simply using the ALERT system could amount to a Parity Act violation, even if the claims flagged by the system were ultimately denied correctly: “Even if all those denials were independently valid, the mere fact that the reasons to deny coverage were identified only because the MH/SUD claims were subjected to an additional layer of scrutiny could violate the Parity Act.”

United contended that Ryan had not shown a sufficient nexus between his claim denials and the ALERT system. However, the DMHC’s report found that at the relevant time United subjected all of its MH/SUD outpatient claims to a more restrictive review process, and thus for the court this was “enough to connect the report’s findings to Ryan S.’s denial of benefits and is therefore sufficient to place Ryan S.’s allegations ‘in a context that raises a suggestion of’ wrongdoing.” Indeed, if Ryan’s allegations, which were supported by the findings of a state agency after a comprehensive investigation, were insufficient, it “would make it inordinately difficult for a plaintiff to challenge an internal process, given the likelihood that an individual claimant’s own administrative record would not shed light on the internal processes to which the claims were subjected. The plausibility pleading standard is not that unreachable.”

Accordingly, the Ninth Circuit reversed the district court’s dismissal of Ryan’s Parity Act claim. The court similarly reversed the district court’s dismissal of Ryan’s breach of fiduciary duty claim. Because Ryan had plausibly alleged that United violated the Parity Act, the court concluded that this violation constituted a breach of fiduciary duty as well.

The Ninth Circuit’s opinion was not a complete win for Ryan, however. Unlike Ryan’s Parity Act and fiduciary breach claims, the court affirmed the district court’s dismissal of Ryan’s violation of plan terms claim. The Ninth Circuit held that even though Ryan had plausibly alleged the existence of a more stringent review process, “such a process would not automatically violate the terms of his plan.” The court ruled that Ryan “must identify a term of his plan that Defendants violated,” and that he had failed to do so.

In sum, this decision represents a major victory for patients in California whose access to MH/SUD treatment has been thwarted by the internal guidelines and processes of health insurers. Presumably the remanded action will now proceed to discovery for a deeper dive into precisely what United’s practices were during the relevant period, who was affected by them, and how those individuals were potentially harmed.

Ryan S. is represented by Your ERISA Watch co-editor Elizabeth Hopkins, along with Lisa S. Kantor, as well as by Richard T. Collins and Damon D. Eisenbrey of Arnoll Golden Gregory LLP.

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

Breach of Fiduciary Duty

First Circuit

Sellers v. Trustees of Bos. Coll., No. 22-10912-WGY, 2024 WL 1586755 (D. Mass. Apr. 11, 2024) (Judge William G. Young). A class of former and current participants in Boston College’s two 401(k) plans are challenging the administration of the retirement plans with respect to the plan’s investments and fees. They have asserted claims for breaches of the fiduciary duties of prudence and monitoring, and for failure to comply with the plans’ investment policy statement. Specifically, the participants allege that the plans’ fiduciaries improperly maintained an actively managed variable annuity stock account and a real estate account despite being aware of their chronic and sustained underperformance. In addition, plaintiffs challenged the retention of the plans’ two third-party administrators, TIAA and Fidelity, and argued that they were charging excessive fees for the services rendered. Boston College moved for summary judgment on all three of plaintiffs’ causes of action. In an exhaustive 126-page decision, the court compressively broke down plaintiffs’ claims and ultimately denied Boston College’s motion for summary judgment as it related to the duty of prudence recordkeeping fees and challenged investment claims, and granted the motion on the claims that it violated plan documents and that it failed to prudently monitor the fiduciaries. First, the court ruled that there are genuine disputes of material fact as to (1) whether Boston College acted prudently when it chose not to consolidate the plans to a single recordkeeper; (2) whether the committee was aware of the true cost of the fees including the distinction between the unique participant fee and the per participant fee; and (3) whether some committee members had conflicts of interest that warranted recusal. The potential conflicts of interest between Committee members and the incumbent recordkeepers was perhaps the most compelling and direct evidence of fiduciary wrongdoing. These conflicts included personal benefits from both TIAA and Fidelity that ran the gamut from the petty (sporting event tickets) to the professional (one committee member was on the TIAA investment council). The court therefore held that there is a genuine dispute as to whether the conflicted committee members “acted imprudently by failing to recuse themselves from voting during the 2018 [request for proposals], as they failed to remove themselves from a position where their personal interest may have come into conflict with the Participants’. A reasonable factfinder could find that this failure to recuse demonstrated a process failure. Thus, this Court rules that there is a genuine dispute of material fact as to breach on the Recordkeeping Fees’ claim.” The court also identified genuine disputes of material fact as to whether the Committee breached its fiduciary duties when it retained the challenged investments. The court found it noteworthy that the challenged investments were placed on watch lists due to their sustained underperformance, but were not removed by the fiduciaries. Thus, it determined that a reasonable factfinder could conclude that retention of the funds was imprudent and accordingly held that summary judgment was not the appropriate means of resolution. However, the court held that no reasonable finder of fact could determine that Boston College violated the terms of the plans’ documents because the “plain language of the IPS does not require the Committee to use certain monitoring criteria and gives the Committee significant discretion to whether to change investments.” While the court’s reasoning behind the Section 404(a)(1)(D) violation of plan terms claim was logical and straightforward, its holding on the failure to monitor claim was somewhat odder. Typically, courts view the fiduciary duty to monitor as derivative of the underlying duties of prudence and loyalty. Here, the court denied the summary judgment motion on the underlying imprudence claim. Therefore, it would have been reasonable to expect that it would have also denied summary judgment on the duty to monitor claim. But that was not the case. Instead, the court said that it found no evidence to suggest that defendants’ monitoring was deficient or that the trustees were not properly kept apprised to the Committee’s actions. “Thus, even though the underlying duty of prudence claim survives summary judgment, this Court GRANTS summary judgment to Trustees on the duty to monitor claim.” Accordingly, following this order the remaining duty of prudence fee and fund claims will proceed to trial. Finally, no summary of this decision would be complete without a brief note on the court’s charming “Epilogue” on summary judgment, detailing why summary judgment was not the proper tool for the determination of this case. “In short, this entire summary judgment exercise has been a monumental waste of time.” But, at the end of the day, the court did acknowledge that ultimate responsibility rested with the court itself, and that it is useless “to rail against the overuse of summary judgment.” The better use of the court’s time, it concluded, would be to simply “prioritize trial as the more apt means of dispute resolution.” It seems the court here put its money where its mouth was, and a trial is indeed coming.

Fifth Circuit

Perkins v. United Surgical Partners Int’l, No. 23-10375, __ F. App’x __, 2024 WL 1574342 (5th Cir. Apr. 11, 2024) (Before Circuit Judges Jones, Barksdale, and Elrod). Participants of the United Surgical Partners International 401(k) pension plan sued United and the plan’s administrative committee for mismanaging investments and failing to control costs in violation of their fiduciary duties under ERISA. The district court dismissed the complaint for failure to state claims pursuant to Federal Rule of Civil Procedure 12(b)(6), determining that plaintiffs’ allegations failed to support plausible duty of prudence of duty to monitor claims. The participants appealed the dismissal to the Fifth Circuit in the wake of the Supreme Court’s decision in Hughes v. Northwestern University, 595 U.S. 170, 142 S.Ct. 737 (2022). The Fifth Circuit agreed with the participants’ reading of Hughes and accordingly reversed the district court’s dismissal and remanded to it for further proceedings in accordance with this decision. At the pleading stage, the court of appeals agreed, plaintiffs’ complaint sufficiently alleged that funds identical to those offered by the plan existed which had lower share costs. These allegations were enough under Hughes, the appellate court found, to infer that the committee breached its duties to the participants. It also clarified that district courts may not favor the fiduciaries’ explanations or justifications for their decisions at this stage of litigation. The Fifth Circuit expressly stated, “defraying recordkeeping costs is not the only plausible explanation for United’s decision to include retail shares. Indeed, another plausible explanation is that the Committee included retail shares in the Plan due to mismanagement.” Moreover, the court of appeals disagreed with defendants that plaintiffs’ allegations about comparative recordkeeping costs and services were insufficient to survive dismissal. This was especially true where, as here, plaintiffs compared the recordkeeping costs for similar services provided to plans of a similar size. Based on the foregoing, the Fifth Circuit concluded that the district court erred in dismissing the complaint at this early stage of litigation.

Eighth Circuit

Lacrosse v. Jack Henry & Associates, Inc., No. 23-CV-05088-SRB, 2024 WL 1578899 (W.D. Mo. Apr. 10, 2024) (Judge Stephen R. Bough). Plaintiff Guy Lacrosse, an employee of Jack Henry & Associates, Inc. and a participant in its 401(k) retirement savings plan, initiated this putative class action against the plan’s fiduciaries for failing to prudently monitor and control the recordkeeping and administrative service fees of the third-party service providers to ensure they were objectively reasonable. Defendants moved to dismiss the class action complaint for failure to state a claim. Their motion was wholly denied by the court in this order. The court’s conversation began with a discussion on the appropriate pleading standard in the Eighth Circuit. In Braden v. Wal-Mart Stores, Inc. the Eighth Circuit explained that district courts should be cognizant of the fact that ERISA plaintiffs lack inside information until discovery commences, and consider their limited access to crucial information. “If plaintiffs cannot state a claim without pleading facts which tend systemically to be in the sole possession of defendants, the remedial scheme of the statute will fail, and the crucial rights secured by ERISA will suffer. These considerations counsel careful and holistic evaluation of an ERISA complaint’s factual allegations before concluding hey do not support a plausible inference that the plaintiff is entitled to relief.” Taking this guidance to heart, the court here evaluated the complaint and concluded that it was sufficient to infer the alleged wrongdoing. Specifically, the court was satisfied that at the motion to dismiss stage the allegations plausibly allege the plan and the comparator plans provided the same recordkeeping and administrative services with the sole difference being cost, that the comparator plans were sufficiently similar to the plan at issue in terms of assets and their numbers of participants, and that defendants did not engage in completive bidding or proper oversight. It therefore declined to dismiss either the duty of prudence or the derivative duty to monitor claims, leaving the putative class action complaint intact.

Class Actions

Tenth Circuit

McFadden v. Spring Commc’ns, No. 22-2464-DDC-GEB, 2024 WL 1533897 (D. Kan. Apr. 8, 2024) (Judge Daniel D. Crabtree). Three retiree participants of the Sprint Retirement Pension Plan sued Sprint Communications, LLC and the Sprint Communications Employee Benefits Committee on behalf of themselves and similarly situated individuals for violations of ERISA. Plaintiffs allege defendants caused them to lose their vested retirement benefits through their calculations for joint and survivor annuity benefits using outdated actuarial mortality assumptions, interest rates, and an unreasonable seven-year setback period. They maintain that these inputs meant the joint and survivor annuity benefits were not equivalent to the single life annuity benefits offered to plan participants in violation of ERISA’s actuarial equivalency and anti-forfeiture statutes. On September 6, 2023, the parties participated in mediation and reached an agreement in principle to a $3.5 million settlement. Plaintiffs here moved unopposed for preliminary settlement approval and preliminary certification of the settlement class. The court granted the Rule 23 preliminary settlement motion in this order. It began with Rule 23 class certification of the class of participants and beneficiaries of the plan “who began receiving a 50%, 75%, or 100% JSA or a GPSA on or after November 11, 2016.” The court first analyzed the settlement class under Rule 23(a). It determined that the 1,009 class members satisfied numerosity, common questions of law and fact around the joint and survivor annuity formulas unite the class members, the named plaintiffs were harmed in the same way as the other class members and were therefore typical of the class, and the named plaintiffs and their counsel were adequate representatives to serve the interest of the absent class members. The court then scrutinized the class under Rule 23(b)(1)(A). It ultimately agreed with plaintiffs that serial actions could produce contradictory obligations and “such an outcome is particularly troubling in the ERISA context given that the statute requires like treatment of the class.” Thus, the court found certification under Rule 23(b)(1)(A) appropriate, and granted the motion for class certification for settlement purposes. Next, the court turned to its evaluation of the fairness and adequacy of the proposed settlement itself. It ruled (1) the parties fairly, honestly, and in good faith negotiated the terms of the settlement; (2) the ultimate outcome of the litigation is not certain; (3) the value of the settlement recovery is proportional and appropriate when weighing the potential “for future relief after protracted and expensive litigation”; and (4) the parties agree that the settlement is fair and reasonable. Weighing these factors together the court was satisfied that the settlement should be preliminarily approved. In addition, the court found the proposed notice itself to be informative, clear, and easily understood. It also accepted the proposed manner of notice, particularly as each class member is already receiving pension benefits and is therefore easy to contact and inform. Finally, the court set the settlement schedule, outlined the procedures to submit objections to the settlement, and stayed the pending litigation.

Disability Benefit Claims

Fourth Circuit

Wonsang v. Reliance Standard Life Ins. Co., No. 1:23-cv-1 (RDA/IDD), 2024 WL 1559292 (E.D. Va. Apr. 10, 2024) (Judge Rossie D. Alston, Jr.). At the time of her disability onset, plaintiff Rebecca Wonsang was employed as a physical therapist. Ms. Wonsang stopped working on May 13, 2016 due to symptoms from fibromyalgia, chronic fatigue, Epstein-Barr virus, IBS, migraines, and joint, back, and neck pain from cervical herniated discs. Defendant Reliance Standard Life Insurance Company approved Ms. Wonsang’s short-term disability benefits, and later, on September 29, 2016, approved her claim for long-term disability benefits. Reliance’s in-house reviewing nurse confirmed that Ms. Wonsang was totally disabled from her own occupation because she is precluded from engaging in sustained physical activity and because she was experiencing poor cognitive abilities and mental fogginess. Reliance paid Ms. Wonsang’s long-term disability claim through the duration of the “regular occupation” period of the policy. However, once benefit eligibility transitioned to the “any occupation” period, Reliance terminated Ms. Wonsang’s benefits, concluding there was insufficient evidence to support a finding that Ms. Wonsang was impaired to the point of holding down any job. Ms. Wonsang challenges that decision in this action. The court in this decision ruled on the parties’ cross-motions for summary judgment, entering judgment in favor of Ms. Wonsang and restoring her benefits. Before it reached a discussion of the merits, the court resolved two preliminary disputes – the timeliness of Ms. Wonsang’s action and the applicable standard of review. First, it concluded that the action was timely. It was in fact Reliance that the court found to be untimely with its review. The court reiterated that ERISA imposes a 45-day window for a claim administrator to issue a benefit decision. Here, Reliance did not provide an appeal decision within the applicable time period nor provide notice of the need for an extension. Accordingly, the court determined that the lawsuit was not premature, even though Reliance failed to conduct its requested independent medical exam. Second, the court ruled that Reliance’s failure to render a timely appeal decision transformed the applicable review standard from abuse of discretion to de novo. “Reliance’s failure to issue a benefits decision within the 45-day period does not constitute a minor irregularity or ‘substantial compliance with the required procedures’…Rather, Reliance failed to comply with the required procedures such that de novo review is appropriate.” Having settled these preliminary issues, the court addressed the relevant merits of each party’s positions. The court determined that Reliance’s “minimalist approach” to processing its decision, basing its denial exclusively on its reviewing nurse’s opinions on the papers, was unpersuasive and inappropriate. Rather, the court felt it was Ms. Wonsang who had the stronger arguments and evidence to support her position. In the end the court agreed with her that her cumulative symptoms left her unable to sustain any work. This was especially true, the court added, because Reliance relied on post-hoc denial rationales including a new argument in court based on the plan’s limitation period for mental health disorders. The remaining issue was the appropriate remedy. “Here, Reliance has failed to live up to its fiduciary duty as mandated under ERISA. Further, the Court does not find Reliance’s failure to timely issue an appeals decision or its failure to include the Limitation prior to this litigation to be ‘procedural.’…Therefore, without deciding the specific amount due, the appropriate remedy is to award benefits to Wonsang from March 26, 2022 to present day.” Finally, Ms. Wong was instructed to file a motion for attorney’s fees and costs.

Discovery

Tenth Circuit

Macias v. Sisters of Charity of Leavenworth Health Sys., No. 1:23-cv-01496-DDD-SBP, 2024 WL 1555061 (D. Colo. Apr. 10, 2024) (Magistrate Judge Susan Prose). Participants of ERISA-governed defined contribution pension plans filed this putative class action against the plans’ fiduciaries for breaches of their duties managing the plans and their funds. Before the court was defendants’ Rule 26(c) motion to hold discovery in abeyance during the pendency of their motion to dismiss. Magistrate Judge Susan Prose granted the motion to stay. The Magistrate ruled that staying discovery would not burden plaintiffs, while allowing discovery to continue would unduly burden defendants and the court. In particular, the court stressed “that discovery in a matter where class claims encompass a years’ long period would be broad and complex.” And while the court acknowledged that discovery does not ordinarily pose an undue burden on defendants, it distinguished class action lawsuits, finding them fundamentally different due to “the breadth of class action discovery” and their “elevated burden” should a stay not be granted. Additionally, it was the court’s opinion that staying discovery would be to its benefit by making its docket more predictable and manageable. Thus, the motion was granted, and discovery is stayed until the court resolves the pending motion to dismiss.

ERISA Preemption

First Circuit

Tutungian v. Massachusetts Elec. Co., No. 24-10228-FDS, 2024 WL 1541094 (D. Mass. Apr. 9, 2024) (Judge F. Dennis Saylor IV). After his supplemental life insurance policy was cancelled, plaintiff Daniel Tutungian filed a state law civil action against Massachusetts Electric Company seeking to regain coverage. Assuming the life insurance policy is an ERISA-governed plan, defendant removed the action to federal court on the basis of ERISA complete preemption. Mr. Tutungian moved to remand the action to state court. His motion was denied in this decision. The court held that under the Supreme Court’s Davila test, Mr. Tutungian’s claims could have been brought under ERISA and there is no independent legal duty. It stressed that the complaint is in essence a judicial challenge seeking restoration of ERISA life insurance benefits. The court ruled that restoration of coverage is a remedy provided by ERISA’s remedial scheme. It also agreed with defendant that the life insurance policy did not fall under ERISA’s voluntary plan safe harbor exemption because all the MetLife life insurance policies were treated as one unit with one certificate and group number. “As the First Circuit has explained, it is ‘both impractical and illogical to segment insurance benefits that are treated as a single group and managed together, potentially placing some under ERISA and some outside the statute’s scope.’” Thus, because the court held that ERISA preempts the state law claims and the safe harbor exemption does not apply, it concluded that it has exclusive subject matter jurisdiction over this dispute and therefore denied the motion to remand.

Second Circuit

Brian & Spine Surgery, P.C. v. Int’l Union of Operating Eng’rs Local 137 Welfare Fund, No. 23-CV-6145 (ARR) (LGD), 2024 WL 1550411 (E.D.N.Y. Apr. 10, 2024) (Judge Allyne R. Ross). Plaintiff Brain and Spine Surgery, P.C. provided successful surgery on a patient covered under an ERISA-governed healthcare plan, the International Union of Operating Engineers Local 137 Welfare Fund. Each of the two surgeons billed over $350,000 for the medical services provided. The Fund faxed over two payment proposals, one for $80,760 for one of the surgeons and one for $24,228 for the other surgeon’s services. Each agreement stated that these amounts were the maximums allowed under the plan. Brain and Spine Surgery received these proposals and executed and returned the two agreements. However, the Fund has yet to pay the amounts it offered in the agreements. In this action, Brain and Spine Surgery has sued the Fund and its administrator in New York state court for breach of contract and unjust enrichment, seeking payment for its services. Defendants removed the action to federal court, arguing ERISA preempts plaintiff’s claims. The provider moved to remand its action. Here, the court denied the motion to remand, and determined that the unjust enrichment claim was completely preempted by ERISA. Under the doctrine of complete preemption, the court employed the two-part Davila test to determine that Brain and Spine Surgery had derivative standing to sue under ERISA, the unjust enrichment claim, as framed in the complaint, is a colorable claim for benefits, and it does not implicate an independent legal duty. Overall, the court concluded that the unjust enrichment claim is dependent on the ERISA plan, as the obligation to pay the claims arises from the plan. In this case, the court understood the complaint as fundamentally seeking a right to a payment tied to services covered under an ERISA-governed plan. “As such, plaintiff’s claim for the reasonable value of its services does not involve a mere cursory review of an ERISA plan to determine the applicable rate of pay for a given medical service.” Accordingly, the court agreed with defendants that the unjust enrichment claim was completely preempted. It then declined to decide whether the breach of contract claims were preempted too, and instead opted to exercise supplemental jurisdiction over them. For these reasons, the court maintained jurisdiction over the action and denied the motion to remand.

Medical Benefit Claims

Third Circuit

DeMarinis v. Anthem Ins. Co., No. 3:20-CV-713, 2024 WL 1557379 (M.D. Pa. Apr. 10, 2024) (Judge Robert D. Mariani). Plaintiff Chris DeMarinis sued the administrator of his ERISA-governed healthcare plan, Anthem Insurance Companies, Inc., to challenge the plan’s denial of his teenage son’s stay at an inpatient neurobehavioral unit. The boy, D.D., has non-verbal autism and a severe intellectual disability. In the spring of 2019, D.D. was hospitalized following violent behavior and then sent to the inpatient neurobehavioral center for intensive rehabilitative treatment. Mr. DeMarinis contends that Anthem should cover the cost of D.D.’s treatment from May 8, 2019 to October 24, 2019 in the amount of $459,318, plus reasonable attorneys’ fees and costs. The parties filed cross-motions for summary judgment under arbitrary and capricious review. In this order the court denied Anthem’s summary judgment motion, and granted in part plaintiff’s motion for summary judgment. The court ruled that Anthem’s position that D.D. was not at risk of harming himself or others as of May 8, 2019 was simply inaccurate and not supported by the medical records. Moreover, Anthem’s own medical reviewers contradicted themselves by acknowledging in their notes that there was no change in D.D.’s condition from the time he was admitted to the hospital to May 8, 2019. The court also found that Anthem failed to adequately consider the opinions of D.D.’s team of treating physicians, Anthem failed to consider all relevant diagnoses and aspects of D.D.’s complicated medical situation, and the reviewer Anthem hired was not in fact independent or neutral. To the court, the medical records did not substantially support Anthem’s denial. Instead, they demonstrated clearly that D.D. continued to be at risk of serious harm without the proper medically necessary intervention. “For the foregoing reasons, the Court concludes that Anthem’s decision to deny coverage from May 8, 2019, forward exhibits an irregularity that suggests its decision was arbitrary and capricious.” After viewing everything as a whole, including the procedural failings of the denial letters, the court entered judgment in favor of Mr. DeMarinis on his benefit claim. Further, the court determined that an award of benefits was the appropriate remedy for Anthem’s denial. The court further agreed with plaintiff that he had properly administratively exhausted the denials before bringing suit and that he did not need to submit continuous bills for the already denied treatment ad nauseam. Thus, the court found Mr. DeMarinis had diligently pursued administrative relief and further efforts to do so would have been futile because the benefits determination was fixed. In all likelihood, “Anthem would have continued to improperly find a lack of serious harm.” However, despite the court’s conclusion that the family was entitled to an award of benefits for some period beyond the date when they stopped submitting bills to Anthem, it ultimately determined that it needed to remand to Anthem to determine the extent to which coverage should have been extended. Therefore, for coverage beyond July 7, 2019, plaintiff was directed to resubmit relevant medical records for Anthem’s review and Anthem was ordered to expeditiously conduct a medical necessity evaluation of those records consistent with this decision. Mr. DeMarinis was also instructed by the court to file a motion for attorneys’ fees and costs.

Ninth Circuit

Dan C. v. Anthem Blue Cross Life and Health Ins. Co., No. 2:22-cv-03647-FLA (AJRx), 2024 WL 1533636 (C.D. Cal. Apr. 9, 2024) (Judge Fernando L. Aenlle-Rocha). This is a particularly harrowing mental healthcare action involving denied claims for residential treatment benefits of an adopted nine-year old Haitian boy who was orphaned following the death of his biological mother. This trauma in early age left the child with severe behavioral and mental health problems, including violent behaviors that could only be safely treated in a residential setting. The child’s father, Dan. C., a participant of the Director’s Guild of America welfare plan, sued the Director’s Guild and Anthem Blue Cross, the claim administrator, for wrongful denial of benefits and breach of fiduciary duty for failure to provide a full and fair review. On January 3, 2024, the court held a bench trial in this case. In this decision it issued its findings of fact and conclusions of law and entered judgment on both counts in favor of Dan C. under de novo review. The court agreed with plaintiff that defendants were guilty of cherry-picking favorable treatment notes from the records while ignoring the sometimes shocking evidence in the record demonstrating the child’s “risky and dangerous behavior, impaired judgment, and emotional difficulties that could not have been managed without residential treatment, due to his violent and threatening nature and impaired daily functioning.” As the court noted, many of these violent events continued long after the denial. It was therefore the court’s opinion that continued residential treatment was medically necessary for the boy because he posed a risk of danger to himself and others without this intervention and because he was unable to function outside of the residential setting. Accordingly, the court determined that the father was entitled to full benefits. Moreover, the court found for the father on his full and fair review claim. It stated that defendants disregarded relevant medical evidence, failed to engage with the voluminous medical records, failed to consult the treatment providers, and, perhaps most egregiously, engaged the same doctor for both the first and second-level review. “Even more troubling is that Dr. Holmes certified in his second report that he had ‘not had any prior involvement in the denial/appeal process for the case,’ …when he had authored a report…in the same case less than one month prior.” The court further observed that the benefits committee acted improperly when they denied the claim because they were not in possession of Dr. Holmes’ medical credentials. For these reasons, the court found that the denial was not a full and fair review of plaintiff’s claim for benefits. Thus, the court entered judgment in plaintiff’s favor and informed him that he may bring a motion for attorney’s fees pursuant to Section 502(g)(1).

Pension Benefit Claims

Fourth Circuit

Hudson v. Plumbers & Steamfitters Local No. 150 Pension Fund, No. 8:23-cv-6422-JDA, 2024 WL 1526609 (D.S.C. Apr. 5, 2024) (Judge Jacquelyn D. Austin). Plaintiff Allen B. Hudson, a retired and disabled member of the Plumbers and Steamfitters Local Union No. 150, brought this action challenging the union’s denial of his full pension benefits. Mr. Hudson alleges that the union, its pension fund, and the plan’s claims administrator violated ERISA by altering his employment records and failing to credit military service years in order to reduce his vested pension benefits, despite previously confirming “that he had fully and irrevocably vested in the Plan.” The union moved to dismiss the complaint for failure to state a claim. Specifically, the union argued that its motion should be granted because it is not the pension fund or plan administrator and therefore not a proper defendant in a Section 502(a)(1)(B) action, and that it was not acting in a fiduciary capacity with respect to any of the activity alleged in Mr. Hudson’s complaint, meaning his Sections 502(a)(2) and (a)(3) fiduciary duty claims should likewise be dismissed. The court disagreed. At this juncture, the court accepted the allegations in the complaint that the union had fiduciary control over the plan’s administrator. By contrast, the court noted that the union presented no countervailing evidence to undermine Mr. Hudson’s allegations. Through this lens, the court found that Mr. Hudson had pled enough to withstand the union’s motion to dismiss. 

Pleading Issues & Procedure

Fourth Circuit

Penland v. Metropolitan Life Ins. Co., No. No. 22-1720, __ F. App’x __, 2024 WL 1528957 (4th Cir. Apr. 9, 2024) (Before Circuit Judges Wynn, Harris, and Benjamin). Plaintiff-appellant Tracy W. Penland sued Metropolitan Life Insurance Company (“MetLife”) to challenge its termination of his long-term disability benefits. Employing a “quasi-summary-judgment” approach and reviewing the termination decision de novo, the court made factual findings to affirm MetLife’s determination that Mr. Penland’s conditions not subject to the plan’s “neuromuscular, musculoskeletal and soft tissue” 24-month limitation were not disabling. Importantly, the district court did not state, indicate, or suggest in its decision that it was making its factual findings pursuant to a bench trial under Federal Rule of Civil Procedure 52. “Nor did it style its opinion to comport with the requirements of that rule.” However, after the district court issued its ruling in this action there was an intervening change in controlling law in the Fourth Circuit. That change came from the appeals court’s decision in Tekmen v. Reliance Standard Life Ins. Co., 55 F.4th 951 (4th Cir. 2022), wherein the court rejected the quasi-summary-judgment procedure and clarified the need for a bench trial pursuant to Rule 52 in ERISA benefit disputes. (Kantor & Kantor LLP was appellate counsel for plaintiff in the Tekmen case, which Your ERISA Watch covered as the week’s notable decision in our December 21, 2022 newsletter.) The Fourth Circuit explained that summary judgment “is reserved for cases in which there is no genuine issue of material fact.” Where a district court must make factual findings that implicate a genuine material issue, summary judgment is not appropriate and a Rule 52 trial is required. The court of appeals reasoned that “a district court’s fact-finding in the guise of summary judgment would be subject, like other summary judgment rulings, to de novo review on appeal – requiring ‘redundant factfinding by the appellate courts’ and giving ‘district courts little reason to invest the time in factfinding necessary in cases with genuine disputes of material fact.’” The appellate court observed that because “this court’s important clarification in Tekmen came only after the district court’s ruling here,” the district court “through no fault of its own” issued a decision “bearing the hallmarks of the modified summary judgment approach” in conflict with the rules established in Tekmen. The Fourth Circuit was unwilling to assume for the sake of efficiency that the district court’s summary judgment fact-finding exercises weighing the evidence and making credibility judgments amounted to a Rule 52 bench trial. Rather, it concluded that reviewing the district court’s decision “would entail review under a deferential ‘clearly erroneous’ standard that neither the parties nor the court would have anticipated while this case was before the district court.” Thus, it ruled that the appropriate approach to ensure fairness under the circumstances was to vacate the district court’s judgment and remand to it for a Rule 52 bench trial consistent with Tekmen.

Standard of Review

Ninth Circuit

K.G. v. University of S.F. Welfare Benefit Plan, No. 23-cv-00299-JSC, 2024 WL 1589980 (N.D. Cal. Apr. 11, 2024) (Judge Jacqueline Scott Corley). The court ruled on the appropriate standard of review in this healthcare benefit case. Of the four potentially relevant documents presented by defendant University of San Francisco Welfare Benefit Plan, the court determined that two, the Master Document and the 2020 Benefit Booklet, made up the written plan document during the relevant period. With regard to the Master Document, the court determined that it failed to unambiguously delegate Anthem discretion to determine benefit eligibility or interpret plan terms. As for the Benefit Booklet, the court wrote that it “simply does not clearly indicate that Anthem has discretion to grant or deny benefits.” Without a clear and unambiguous delegation of discretionary authority, the court ruled that the documents failed to warrant departure from the default de novo standard of review.

Venue

Fourth Circuit

Hudson v. Plumbers & Steamfitters Local No. 150 Pension Fund, No. C. A. 8:23-cv-6422-JDA, 2024 WL 1506776 (D.S.C. Apr. 5, 2024) (Judge Jacquelyn D. Austin). This is the second decision this week in this case; see above (under “Pension Benefit Claims”) regarding the court’s denial of the defendant union’s motion to dismiss. To recap, a retired disabled welder, plaintiff Allen B. Hudson, sued his former union, the Plumbers & Steamfitters Local No. 150, its Pension Fund, and Southern Benefits Administrators, Inc., challenging the fund’s decision to deny him full pension benefits. According to his complaint, defendants altered his punch cards from 1967, 1975, and 1976 to reflect 9.875 years of vested service rather than the proper ten years of vested service which is needed to receive full pension benefits. Mr. Hudson also argues that the union is in violation of federal law as well as the terms of the plan because it failed to credit him with three years of military service. In this decision the court ruled on defendants’ motion to transfer venue to the Middle District of Tennessee, the venue where the plan in administered. The motion to transfer was denied. Of note, the court found the judicial economy factor and Mr. Hudson’s choice of forum both significantly weighed against transfer. As to the former, the court stressed that is “has spent time considering [pending discovery and pleading] motions, and it would be inefficient for another court to have to duplicate that work.” Regarding the latter, the court highlighted that plaintiff’s choice of forum, particularly when it is his or her home forum, must be given strong weight under ERISA’s liberal venue provision. This was particularly true in the present action where Mr. Hudson contended that he “is a 73-year-old retiree and Army veteran with substantial health issues…disabled due to his exposure to beryllium throughout his career…Additionally, his resources are limited, particularly in light of the denial of his pension benefits…By contrast, the[] Defendants are well-funded organizations who have each already hired counsel in the [District of South Carolina], all of whom practice in South Carolina or have been admitted pro hac vice.” Under these circumstances, the court did not find it in the interest of justice to transfer Mr. Hudson’s action to Tennessee.