Spence v. American Airlines, Inc., No. 4:23-cv-00552-O, 2024 WL 3092453 (N.D. Tex. Jun. 20, 2024) (Judge Reed O’Connor)

There has been a great deal of controversy engendered by corporate environmental, social, and governance (ESG) initiatives, and ERISA-governed benefit plans are becoming a big part of that debate. Corporations have increasingly focused not only on financial goals, but also on how their decisions affect climate change, social justice, and equity. Thanks to this recent decision denying one corporation’s motion for summary judgment, a first-of-its-kind trial has just concluded in a lawsuit challenging one such plan.

This class action was brought by an American Airlines pilot, Bryan Spence, who is a participant in an American Airlines-sponsored 401(k) plan. He sued the fiduciaries of the plan for breaches of their duties of prudence, loyalty, and monitoring under ERISA, alleging that they mismanaged the plan by including funds that pursue “non-financial and nonpecuniary ESG policy goals through proxy voting and shareholder activism.”

Your ERISA Watch reported on an earlier decision in this case denying the fiduciaries’ motion to dismiss in our February 28, 2024 newsletter, and the district court subsequently certified a class. Defendants then moved for summary judgment, which the district court denied in this lengthy decision.

Throughout the decision, the court signaled that it was receptive to plaintiffs’ theory of liability – that defendants violated their fiduciary obligations by failing to act exclusively in the plan participants’ financial interests because of their personal interest in utilizing financial managers, including BlackRock, committed to ESG goals. “Put simply, Plaintiff’s theory is one of mismanagement due to ESG activism.” The court viewed this theory of liability as “broad and straightforward.” 

Against this backdrop, it was not clear to the court that defendants acted prudently in their administration and management of the plan. “At the outset, Plaintiff points to evidence that Defendants never reviewed or monitored proxy voting by any of the Plan’s investment managers. This lack of review and monitoring even appears to have taken place after Defendants learned that the largest investment manager of Plan assets, BlackRock, voted proxies in support of ESG objectives rather than exclusively in the financial best interests of the Plan.” To the court, the lack of discussion about ESG investment strategies raised a material factual dispute as to whether defendants acted in accordance with prudent fiduciary standards. Importantly, the court focused on the fact that the first time defendants ever discussed ESG-related proxy voting was “after Plaintiff filed this lawsuit.” Based on this, the court found that a reasonable fact finder could conclude that defendants acted “unreasonably under ERISA’s fiduciary duties of prudence and monitoring.”

The court also declined to decide before trial “whether alternative funds and benchmark evidence are necessary for Plaintiff to succeed on the breach of prudence claim or if the mere demonstration that Defendants disregarded, or otherwise failed to act regarding, the established record of ESG underperformance is sufficient on its own without comparators.” This stands in rather stark contrast to most ERISA class action litigation, where courts have required plaintiffs to point to and describe comparators (with greater and lesser degrees of detail depending on the court) in order to even survive a motion to dismiss.

Additionally, the court found it unclear whether defendants violated their duty of loyalty. Here, the court highlighted that senior officials at American Airlines had communications with one another expressing their support for BlackRock’s ESG objectives. The court said these conversations were potential “evidence of corporate ESG goals influencing the administration of the Plan,” which the court viewed as creating genuine questions about whether defendants acted disloyally.

Finally, the court disagreed with defendants that the class could not prove financial loss resulting from the ESG investment decisions. The court found that plaintiff offered sufficient prima facie evidence of losses, while it found that defendants failed to demonstrate “that any losses were not caused by their fiduciary breaches.”

In the court’s view, a reasonable finder of fact could conclude that they “did not take all necessary and timely steps to ensure that the Plan’s assets remained protected. Therefore, at a minimum, there is a factual dispute as to whether Defendants could have taken steps to prevent losses to the Plan.”

For these reasons, the court denied defendants’ motion for summary judgment, and a bench trial was completed on June 27, 2024. Stay tuned for coverage of that decision.

At a minimum, regardless of the outcome of the trial, this action demonstrates the potential risk plans may face if they are committed to ESG principles, and could cause fiduciaries of ERISA plans to pause before pursuing ESG strategies or even invest in vehicles that utilize ESG.

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

Attorneys’ Fees

Sixth Circuit

Davita Inc. v. Marietta Mem’l Hosp. Emp. Health Benefit Plan, No. 2:18-cv-1739, 2024 WL 3226114 (S.D. Ohio Jun. 28, 2024) (Magistrate Judge Kimberly A. Jolson). This action, brought by dialysis providers, concerns terms of the Marietta Memorial Hospital Employee Benefit Plan that “reimburses dialysis services at a depressed rate,” which plaintiffs allege discriminates against participants suffering from illnesses requiring dialysis treatment and by extension, exposes participants to higher costs. The parties fiercely disputed discovery in this action. Eventually, both the district court and the Sixth Circuit weighed in on the dispute. Both ended up finding that plaintiffs were entitled to further discovery and the Sixth Circuit acknowledged that “discovery may yield evidence of Defendants’ motive for instituting unique reimbursement terms for dialysis services.” Defendants continued to resist discovery demands after these rulings, forcing plaintiffs to move to compel discovery. Their motion was granted in part, and the court ordered the parties to do more to resolve their dispute. In the end, defendants agreed to produce nearly everything subject to the motion to compel. Plaintiffs then moved for attorneys’ fees under Rule 37(a)(5)(A) for defendants’ failure to engage in discovery and for their efforts to frustrate discovery proceedings. The court granted plaintiffs’ motion for attorneys’ fees in part in this decision. First, the court held that because it granted the motion to compel only in part, “Rule 37(a)(5)(C) fits better here. And the decision whether to order Defendants to pay plaintiffs’ reasonable expenses is soundly within the Court’s discretion.” The court began its analysis with defendant Medical Benefits Mutual Life Insurance Company (MedBen). It found that MedBen made valid objections about the scope and burden of plaintiffs’ requested discovery and made reasonable arguments for why it viewed plaintiffs’ requests as beyond ERISA’s typical narrow discovery scope. Although the court stated that it was sympathetic to the healthcare providers and the delay they faced as a result of MedBen’s objections, it nevertheless stressed that MedBen ultimately complied with all discovery orders and mounted arguments against production that were not baseless. Accordingly, the court concluded that MedBen’s action did not warrant payment of plaintiffs’ expenses and thus declined their request as it related to MedBen. Next, the court analyzed plaintiffs’ motion as it related to defendants Marietta Memorial Hospital and its plan. The court faulted these defendants for their actions regarding electronic discovery. It stated that they were in the wrong for deleting important emails after plaintiffs moved for discovery, for producing only a small number of documents, and for their unwillingness to share basic information with the plaintiffs and to meet and confer further. These actions, the court concluded, were not done in good faith and were “unreasonable.” “Put simply, Defendants Marietta and the Plan refused to confer with Plaintiffs as ordered until the threat of sanctions and an in-person hearing weighed over their head.” As a result, the court found that an award of fees and expenses was justified, and ordered Marietta and the plan to pay plaintiffs’ reasonable expenses and fees incurred after the court ordered the parties to confer and until May 8, 2024, when they finally did so and resolved the disputes.

Breach of Fiduciary Duty

Third Circuit

McCauley v. The PNC Fin. Servs. Grp., No. 2:20-CV-01493-CCW, 2024 WL 3091754 (W.D. Pa. Jun. 21, 2024) (Judge Christy Criswell Wiegand). In this action plaintiff John McCauley alleges that PNC Financial Services Group, Inc. and PNC Financial Services Group, Inc. Incentive Savings Plan Administrative Committee violated ERISA’s fiduciary duties of prudence and monitoring when they paid excessive recordkeeping fees to the plan’s recordkeeper, Alight. Defendants moved for summary judgment on all three claims: (1) breach of the duty of prudence; (2) failure to monitor fiduciaries and co-fiduciary breaches; and (3) knowing participation in the breach of fiduciary duties. In addition, defendants moved to exclude the testimony and opinions of plaintiff’s expert witness, Ty Minnich. Both motions were granted by the court in this order. First, the court agreed with PNC that Mr. Minnich’s expert testimony was not reliable because it was based solely on his subjective beliefs and experience, and not on “any reproducible or traceable process” or other reliable methodology. “In his Report, Mr. Minnich describes three important factors when calculating a reasonable fee, but he does not indicate how – aside from his experience – he used these to arrive at a reasonable fee.” It was noteworthy to the court that Mr. Minnich “did not create a pricing curve – despite indicating this is the industry norm…to calculate his reasonable fees.” Moreover, it struck the court that Mr. Minnich did not use his four comparator plans as part of his pricing analytic opinions, and instead only provided these comparator plans “as supporting documents to illustrate examples of other plans.” The court saw this as an example of “cherry-picking” the comparators, selecting them only after the fact in order to support the calculations. Therefore, the court found Mr. Minnich’s methodology unreliable and therefore excluded his expert opinion regarding reasonable market fees. In addition, the court further found Mr. Minnich’s opinion as to the amount of damages unreliable, as it was derived from the very assumptions the court took issue with regarding reasonable fee amounts. Accordingly, Mr. Minnich’s testimony was wholly excluded. Without this testimony, the court forged ahead with defendants’ summary judgment motion.  “Here, the Court need not address whether PNC breached its duty of prudence because the Court finds that Mr. McCauley has failed to point to sufficient evidence from which a factfinder could conclude that a breach of fiduciary duties caused a loss to the Plan.” As Mr. McCauley relied on Mr. Minnich’s expert report to establish a prima facie case of loss, and because the court ruled that the expert opinion was inadmissible, it held that Mr. McCauley could not establish loss. As a result, the court granted summary judgment to defendants on count one, as well as on counts two and three which were dependent on the claims in count one.

Ninth Circuit

Paieri v. Western Conference of Teamsters Pension Tr., No. 2:23-cv-00922-LK, 2024 WL 3091495 (W.D. Wash. Jun. 21, 2024) (Judge Lauren King). Plaintiff Michael Paieri commenced this action on behalf of himself and three proposed classes of similarly situated individuals against the Western Conference of Teamsters Pension Trust and its fiduciaries. Mr. Paieri alleges that defendants violated several provisions of ERISA including: (1) its requirement that joint and survivor annuities be actuarially equivalent to single life annuity benefits; (2) its prohibition on cutting back vested accrued benefits; (3) its requirement that participants be provided with necessary information to compare various pension benefit options; (4) its mandate that documents be provided upon written request; and (5) its fiduciary duty standards. Defendants moved to dismiss the action. They argued that the claims were time-barred, that Mr. Paieri did not allege a concrete harm to confer him with Article III standing, and that the claims themselves failed because ERISA does not impose a reasonableness standard for actuarial assumptions, and they were not acting in a fiduciary capacity when they engaged in the conduct alleged. The court denied defendants’ motion to dismiss and concluded that Mr. Paieri has standing to assert his causes of action, that the claims are not time-barred on the face of the complaint, and that Mr. Paieri plausibly stated his claims for relief. First, the court discussed standing. It stated that by asserting defendants failed to fully disclose the relative value of different forms of pension benefits, “the Plan prevented him and other participants ‘from electing the more valuable form of benefit.’” The court stated that these allegations were enough to plead a concrete harm and therefore “sufficient to allege a cognizable informational injury.” Next, the court disagreed with defendants that Mr. Paieri’s causes of action were untimely. It concluded that Washington’s six-year statute of limitations for contract claims is the most analogous to Mr. Paieri’s claims seeking to recover benefits under the plan and thus applicable. In addition, the court said it was “unclear at best whether any statute of limitations began running more than six years prior to his lawsuit.” Thus, the court concluded that defendants could not satisfy their burden of showing on the face of the complaint that any of the claims were untimely, under either Washington’s statute of limitations or ERISA’s fiduciary breach statute of limitations. Defendants’ request to dismiss the claims for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6) was also denied. The court stated “that the plain meaning of ‘actuarial equivalence’ requires reasonable actuarial assumptions,” and determined that Mr. Paieri plausibly alleged the plan is using mortality tables that do not reflect current longevity improvements. Thus, he sufficiently stated a claim for violation of ERISA Sections 1053 and 1055. Additionally, the court found that the complaint does not focus solely on settlor functions of plan design or amendments, but affirmatively alleges that defendants functioned as fiduciaries. Based on the foregoing, the court denied the motion to dismiss in its entirety. In addition to their motion to dismiss, defendants moved to bifurcate the action into two phases – liability and damages. This motion was granted by the court. The court determined that phasing discovery and bifurcating the action will preserve resources, promote efficiency, and advance the interest of judicial economy without prejudicing either party.

Tenth Circuit

Su v. Ascent Constr., No. 23-4114, __ F. 4th __, 2024 WL 3093647 (10th Cir. Jun. 24, 2024) (Before Circuit Judges Phillips, Kelly, and Moritz). In 2022, the Department of Labor (DOL) began investigating Ascent Construction, Inc. and its president and CEO, Bradley Knowlton, to determine whether they violated their fiduciary duties under ERISA in handling the company’s Employee Stock Ownership Plan. That investigation revealed that Mr. Knowlton had engaged in self-dealing and deposited hundreds of thousands of dollars of the plan’s assets into the company’s checking account to pay business expenses. In addition, the investigation discovered that a former employee requested a distribution from his retirement account that he never received even though the plan’s custodian issued a distribution check at Mr. Knowlton’s request. It also became clear to the DOL that the company was experiencing financial distress. The DOL learned that Ascent Construction and Mr. Knowlton were being sued by an insurance company. (That action ended with the insurance company receiving a $26 million judgment against Ascent and Mr. Knowlton.) Eventually, the DOL froze the plan’s funds and filed this lawsuit alleging Ascent and Mr. Knowlton were violating ERISA’s fiduciary duties and prohibited transaction rules. As part of its complaint, the Labor Department sought a permanent injunction removing Mr. Knowlton and Ascent from their respective positions as trustee and administrator of the plan and appointing a new independent administrator in their places, as well as an order offsetting Mr. Knowlton’s individual account balance against any amounts owed to the plan participants for the breaches of defendants’ duties. Shortly after it filed its complaint, the DOL moved for a preliminary injunction removing defendants as plan fiduciaries and appointing an independent fiduciary to prevent further violations of ERISA and dissipation of plan assets. The district court granted the preliminary injunction motion. (Your ERISA Watch covered the decision in our July 12, 2023 issue.) Defendants responded by filing this interlocutory appeal to the Tenth Circuit Court of Appeals. While the appeal was pending, the case proceeded in the district court. In late January 2024, the district court ordered defendants to show cause for their failure to timely answer the Department’s amended complaint and warned that further failure to comply with court orders could result in default judgment against them. “In a later order, the district court concluded that defendants willfully failed to engage in the litigation process and comply with the court’s orders, prejudicing the DOL and interfering with the judicial process. And as warned, it entered a default judgment against defendants under Federal Rules of Civil Procedure 16(f)(1)(C) and 37(b)(2)(A)(vi) in the amount of $288,873.64. It also entered a permanent injunction that superseded the preliminary injunction at issue in this appeal, permanently barring Knowlton and Ascent from serving, respectively, as trustee and administrator of the Plan and authorizing the appointed fiduciary to terminate the Plan and commence a claim-submission process.” Because of the district court’s holdings, the DOL responded to the pending interlocutory appeal by moving to dismiss it as moot. In this decision the Tenth Circuit agreed and concluded that the district court’s issuing of the permanent injunction and entering final judgment rendered the appeal moot. As the court of appeals plainly put it: “A preliminary injunction dissolves automatically with the entry of final judgment.” This was true, even as here, where the district court entered a default judgment rather than a final adjudication on the merits of the claims. The court broadly rejected defendants’ application of the Supreme Court’s decision in Grupo Mexicano v. Alliance Bond Fund. Inc. and explained why it was distinguishable. “We agree with the DOL that Grupo Mexicano does not preserve our subject matter jurisdiction over this appeal. Unlike the preliminary injunction in Grupo Mexicano, which sought to preserve the holding company’s assets in case of final judgment against it on the breach-of-contract claim, the preliminary injunction here sought ‘to enjoin, pending the outcome of the litigation, action that [the DOL] claims is unlawful.’” Accordingly, the appeals court agreed with DOL that the aim of the underlying litigation, unlike in Grupo Mexicano, aligned with the effects of both the preliminary and later the permanent injunctions. Consequently, the Tenth Circuit concluded that granting defendants’ requested relief vacating the preliminary injunction would not have a real world effect, thus rendering the appeal moot. Therefore, the Tenth Circuit dismissed the appeal for lack of subject-matter jurisdiction.

Disability Benefit Claims

First Circuit

Bernitz v. USAble Life, No. 22-cv-10712-DJC, 2024 WL 3106249 (D. Mass. Jun. 24, 2024) (Judge Denise J. Casper). In this action plaintiff Steven Bernitz alleges defendants USAble Life and Fullscope RMS wrongfully terminated his long-term disability benefits. In December 2013, Mr. Bernitz was hired by Synta Pharmaceuticals as its senior vice president of corporate development. Unfortunately, he stopped working not long after. In June 2014, Mr. Bernitz applied for disability benefits after he experienced a sudden onset of severe back pain in late April of that same year, which left him unable to sit for extended periods of time. Mr. Bernitz’s claim for benefits included a statement from his treating doctor noting that MRI results showed “severe degenerative disc disease and neuroimpingement.” He was later diagnosed with spondylosis with radiculopathy. In March 2015, USAble Life approved his claim for long-term disability benefits. Over the coming years, Mr. Bernitz underwent multiple extensive spinal surgeries. Ultimately, his treating physicians noted to USAble Life that his condition was “permanent and irreversible,” and that the surgeries had only “resulted in very minor symptom improvement.” In addition to the physical symptoms, Mr. Bernitz also suffered from cognitive concentration problems resulting from side effects from his pain medication. Despite the seeming severity of Mr. Bernitz’s condition, in late 2018, an administrative law judge for the Social Security Administration denied Mr. Bernitz’s application for Social Security disability benefits, and shortly after, in 2019, USAble Life terminated Mr. Bernitz’s long-term disability benefits. The medical reviewer for the insurance company concluded that Mr. Bernitz’s condition had improved, as he had recently lost about 70 pounds and hip surgery had been performed with good results and the combination appeared to be having a positive effect on Mr. Bernitz’s physical condition. Thus, defendants informed Mr. Bernitz that he was no longer impaired from performing a full-time sedentary occupation. Under arbitrary and capricious review, the court affirmed the termination decision in this decision ruling on the parties’ cross-motions for summary judgment. The court agreed with defendants that their decision to deny benefits was supported by substantial evidence in the record of medical improvement and therefore reasonable. “At base, USAble Life rooted its determination that Bernitz’s condition had improved in substantial evidence, including, inter alia, the ALJ’s denial of Bernitz’s application for SSDI benefits (and the Social Security Appeals Council’s affirmance of same), his significant weight loss and the medical benefits of same, his travel to domestic and international destinations, and the personal observations of investigators.” Accordingly, the court expressed that it could not discern any error with respect to USAble Life’s termination of Mr. Bernitz’s long-term disability benefits. Moreover, the court did not take issue with defendants’ handling of his administrative appeal and stressed that defendants simply decided to afford greater weight to their own doctors than to the opinions of Mr. Bernitz’s treating providers, which was not arbitrary and capricious. Thus, the court granted defendants’ motion for summary judgment, and denied Mr. Bernitz’s motion for summary judgment.

Fourth Circuit

Ward v. Reliance Standard Life Ins. Co., No. SAG-23-2147, 2024 WL 3206709 (D. Md. Jun. 21, 2024) (Judge Stephanie A. Gallagher). Plaintiff Christine Ward filed this action under ERISA Section 502 against defendant Reliance Standard Life Insurance Company after Reliance Standard terminated her long-term disability benefits under an ERISA-governed benefit plan. In this decision the court decided the parties’ cross-motions under Federal Rule of Civil Procedure 52, and ruled in favor of Ms. Ward. Ms. Ward became disabled in 2021 after she became one of the millions of Americans to suffer from post-acute COVID or long-COVID syndrome. This illness left Ms. Ward unable to continue working in her high-level position as a senior systems engineer at the MITRE Corporation on work related to Medicare, Medicaid, and the Defense Department. Before it began analyzing the termination decision, the court addressed the parties’ dispute about the appropriate mechanism for the court’s review. Although both parties agreed that Reliance Standard’s decision is subject to abuse of discretion review, Ms. Ward argued that regardless of the review standard the court should conduct a bench trial on the record under Rule 52 rather than issue a ruling on summary judgment. Citing recent Fourth Circuit precedent, the court agreed with Ms. Ward. The court rejected Reliance Standard’s argument “that the Fourth Circuit did not opine that Rule 52 is the proper mechanism to use in a case, like this one, which is subject to abuse of discretion review instead of de novo review.” The court stated that it did not view either Rule 52 or Rule 56 as proving “an ideal mechanism for resolution of this case,” but that on balance “a Rule 52 trial conducted on the papers, while carefully adhering to the abuse of discretion standard, is the better course.” Having settled on Rule 52 review, the court turned to the merits. The court stressed at the outset that Reliance Standard failed to consider the cognitive effects of Ms. Ward’s illness, and focused merely on the physical requirements of her regular occupation. It took issue with this.  “Sedentary occupations’ run the gamut from jobs with very few cognitive requirements…to very extensive cognitive requirements, which can only be performed by a person with the appropriate physical plus cognitive capabilities. Plaintiff’s senior engineering position is certainly on the higher end of that wide range. The logical fallacy in Reliance Standard’s reasoning compounded its failure to confront the evidence of Plaintiff’s continuing cognitive dysfunction and resulted in a determination unsupported by substantial evidence.” The court went on to state that the records did not reflect sustained improvement in Ms. Ward’s cognitive functioning. To the contrary, “records from Plaintiff’s visit to Dr. Pressman in July, 2022 reflect ongoing issues with cognitive functioning.” Thus, the court broadly held that Reliance Standard disregarded the plan language requiring it to evaluate Ms. Ward’s ability to perform the material duties of her own regular occupation, and failed to adequately consider the materials Ms. Ward submitted throughout her administrative appeals process. Accordingly, the court concluded that the decision to terminate benefits was not the result of a reasoned and principled decision making process and was not supported by substantial evidence in the record. Judgment was therefore granted in favor of Ms. Ward. However, because the court concluded that Reliance Standard failed to appropriately address Ms. Ward’s cognitive symptoms in its assessment, the court did not believe it was appropriate to decide for itself whether Ms. Ward is disabled from her occupation. Instead, the court concluded that remanding to Reliance Standard was the appropriate remedy here, and ended its decision by taking this course of action.

Sixth Circuit

Jackson v. Hartford Life & Accident Ins. Co., No. 2:22-cv-3955, 2024 WL 3218236 (S.D. Ohio Jun. 28, 2024) (Judge Sarah D. Morrison). Plaintiff Diana Jackson commenced this action to challenge defendant Hartford Life & Accident Insurance Company’s decision to terminate her long-term disability and waiver of life insurance premium benefits. Hartford had been paying Ms. Jackson monthly benefit payments over the past 19 years, since the onset of her disability in 2002. In this decision the court ruled on the administrative record and granted judgment in favor of Hartford. As a preliminary matter, the court proceeded under arbitrary and capricious standard of review as both the long-term disability and the life insurance policy grant Hartford full discretion. Under this deferential review standard, the court agreed with Hartford that the opinions of its medical reviewers and those of the medical examiner who personally examined Ms. Jackson support its conclusion that by 2021 Ms. Jackson’s physical disabilities had improved to the point where she “is now able to work certain sedentary, unskilled jobs.” Although the court recognized that some evidence in the administrative record “cut[s] in the other direction,” it nevertheless clarified that it did not find the evidence supporting a finding of disability so overwhelming as to “establish that Hartford’s decision to terminate benefits is unsupported by substantial evidence.” Moreover, the court stated that evidence in the record belied Ms. Jackson’s assertion that her decades-long condition had not improved when Hartford terminated benefits. The court additionally disagreed with Ms. Jackson that Hartford was guilty of “cherry-picking” evidence in her medical history to support its desired outcome. Finally, the court expressed that Hartford’s employability assessment reports were acceptable irrespective of the fact that the identified occupations would require Ms. Jackson to undergo some training to perform them. Accordingly, the court granted Hartford’s motion for judgment on the administrative record and affirmed its decision to terminate Ms. Jackson’s benefits.

Medical Benefit Claims

Tenth Circuit

H.R. v. United Healthcare Ins. Co., No. 2:21-cv-00386-RJS-DBP, 2024 WL 3106468 (D. Utah Jun. 24, 2024) (Judge Robert J. Shelby). This case involves the denial of benefits for the mental healthcare treatment of a child, and like all of these actions of a similar nature it is distressing but important. This particular action revolves around father and son, H.R. and D.R., and tells the R. family’s frustrating story about their ERISA healthcare plan’s refusal to cover D.R.’s much-needed residential treatment. “After being sexually abused by a babysitter when he was seven years old, D.R. began receiving therapy.” D.R.’s outpatient psychiatric healthcare providers recommended D.R. receive more intensive treatment in a residential treatment program setting, as they were concerned about his aggressive and violent behaviors, including suicidal ideology and self-harm. The R. family agreed with this treatment recommendation, and subsequently admitted D.R. to two adolescent treatment programs seeking therapeutic care for their son. On the bright side, this care was very helpful to D.R., who made great progress. Nevertheless, this healthcare was expensive, and this litigation of course stems from the refusal of their healthcare plan, the Corning Medical Welfare-Health Plan, to cover the treatment. The plan’s administrator, defendant United Behavioral Health (UBH), provided shifting denials to the family, including that the treatment was investigational, that it was not medically necessary, and that the treatment centers themselves did not meet certain staffing criteria. The family alleged that UBH did not meaningfully engage with D.R.’s medical records or the family’s arguments on appeal, and also failed to supply plan documents to the family despite letters sent requesting them. After exhausting the administrative appeals process, the family commenced this action seeking a court order overturning the denials. Plaintiffs asserted three causes of action; (1) a claim for wrongful denial of benefits under Section 502(a)(1)(B); (2) equitable relief claims for violating the Mental Health Parity and Addiction Equity Act under Section 502(a)(3); and (3) a claim for statutory penalties under Sections 502(a)(1)(A) and (c) for failure to produce plan documents upon written request. The parties filed cross-motions for summary judgment, which the court ruled on in this decision. As an initial matter, the parties agreed that arbitrary and capricious standard of review was appropriate for the denial of benefits claim. The court did not hold back in its discussion on why it believed the denials were an abuse of discretion under ERISA. In one particularly noteworthy paragraph the court wrote, “The fact Defendants’ level two appeal decision acknowledged without explanation that D.R. could have received inpatient treatment at a qualifying RTC does not absolve [the] deficiencies. In fact, it underscores the arbitrariness of Defendants’ determinations. When Defendants’ own reviewers come to inconsistent conclusions and fail to provide any explanation for the shift in rationale, it is unclear how these determinations offer any clarifying information to Plaintiffs or could be anything but arbitrary and capricious. One purpose of ERISA’s full and fair review is the ‘consistent treatment of claims.’ Defendants’ inconsistency here – particularly in view of Defendants’ subsequent denial of D.R.’s residential treatment at Maple Lake for lack of medical necessity – does not advance this objective, nor does it suggest to the court their determinations were ‘made on a reasoned basis.” Defendants’ principal argument in response was that other courts have upheld substantially similar denials under arbitrary and capricious review. The court did not mince words in stating that it did not find this, or any other argument offered by defendants, compelling. The court consistently reprimanded UBH and the plan for not engaging with the family and issuing denials that were conclusory, inaccurate, and ever shifting. Accordingly, the court overturned the denial of benefits for both residential treatment centers and granted summary judgment to plaintiffs on their claims for benefits. However, rather than award benefits outright, the court followed Tenth Circuit guidance, and determined that remand to defendants was the appropriate course of action here. Nevertheless, the court imposed guardrails on defendants’ power during remand, and stipulated that defendants may only consider whether one treatment center met plan criteria for covered residential treatment centers, and for the second treatment facility that they may only consider whether the treatment there was medically necessary. Additionally, because the court reversed and remanded the benefit determinations, it concluded that the Parity Act claim was not ripe and declined to resolve it at this stage. Finally, the court agreed with plaintiffs that they were entitled to statutory penalties for defendants’ failure to provide the requested plan documents. The court awarded a penalty of $95 per day for 824 days, which resulted in a not insignificant sum of $78,280 payable to the R. family. The decision ended with the court postponing a final decision on attorneys’ fees and costs, but reassuring the family that they “have achieved some degree of success on the merits” already.

Pension Benefit Claims

Seventh Circuit

Haynes v. Kone Emps. Ret. Plan, No. 21 C 6647, 2024 WL 3201271 (N.D. Ill. Jun. 27, 2024) (Judge Elaine E. Bucklo). Plaintiff Robert Haynes was employed by KONE, Inc. from 1976 until his retirement in 2021 and was a participant in the KONE Inc. Employees’ Retirement Plan, a defined benefit pension plan. From August 2011 through the middle of 2015, Mr. Hayes was on an international assignment and worked at KONE’s Canadian office. At issue in this lawsuit was KONE’s decision to interpret the term “compensation” in the plan to exclude amounts paid to Canadian tax authorities to calculate Mr. Haynes’ pension benefit attributable to his foreign assignment. This interpretation and application of the term resulted in a reduction of tens of thousands of dollars of pension benefits. As the plan did not contain any language warning of this result, and because he believed his foreign assignment contracts with the company cut against this reading and resulting calculation, Mr. Haynes’ challenged the benefit decision, first through an administrative appeal, and later in this civil litigation. The parties each filed competing motions for summary judgment under arbitrary and capricious review. In this order the court granted judgment in favor of Mr. Haynes. It held that KONE’s decision was arbitrary and capricious. “For time spent working in the United States, KONE interpreted ‘Compensation’ to include Haynes’ gross salary and bonuses; but for his time on foreign assignment, KONE interpreted this same provision to include only net salary and bonuses.” The court stated, “Having so interpreted the Plan, KONE was not free to change course without an explanation.” To do so, the court expressed, was fundamentally an abuse of discretion as it resulted in Mr. Haynes being unfairly and “heavily penalized by way of a reduction in pension benefits.” Thus, even under deferential review, the court concluded that KONE’s explanation did not pass muster, stating that it lacked support in the record, that it was expressly contradicted by the plan language, and so “withers even under the deferential scrutiny applicable here.” Accordingly, the court ruled that Mr. Haynes was entitled to summary judgment. However, the court did not award benefits outright. Instead, it remanded to KONE to determine whether Mr. Haynes’ benefits should be calculated based on compensation using gross earnings he received in Canada converted to USD or to calculate benefits using Mr. Haynes’ “home base salary.” “I cannot say with certainty what the proper calculation is, so…remand to the administrator to calculate Haynes’ pension benefit consistent with this opinion is the right course here.”

Ninth Circuit

Liu v. Kaiser Permanente Emps. Pension Plan for the Permanente Med. Grp., No. 23-cv-03109-AMO, 2024 WL 3090483 (N.D. Cal. Jun. 20, 2024) (Judge Araceli Martinez-Olguin). Plaintiff Sherry Yali Liu applied for pension benefits under Kaiser Permanente’s defined benefit plan after her sister, a participant in the plan, died. Ms. Liu’s claim for benefits was denied. The denial letter explained that benefits were not payable to Ms. Liu because she was never designated as a beneficiary and the plan had never been provided with any information that her sister had any qualified dependent. Following an unsuccessful administrative appeal, Ms. Liu initiated this ERISA action asserting claims under Sections 502(a)(1)(B) and (a)(3) seeking payment of the pension benefits. Defendants moved to dismiss. The court granted their motion, with prejudice, in this decision. It agreed with defendants that Ms. Liu could not sustain her claim for benefits as the face of the complaint made clear that her late sister never completed a valid benefit election form designating Ms. Liu as her beneficiary before her death. Thus, the court concluded Ms. Liu was not entitled to benefits under the plain reading of the plan. Moreover, the court stated that even if the “substantial compliance doctrine” applied to the circumstances here, as Ms. Liu was arguing, the only step her sister took – initiating the online beneficiary process – fell well short of substantial compliance. As for Mr. Liu’s argument that she was entitled to her sister’s pension benefits as a matter of law under IRS Section 401(a)(9)(E), the court succinctly disagreed, noting “Code § 401(a)(9)(E)(ii) does not apply here, as it applies only to defined contribution plans not defined benefit plans such as the Plan.” Even assuming it did apply, the court went on to state that it would not render Ms. Liu her sister’s designated beneficiary; “it might at most make her eligible for designation as a beneficiary.” For these reasons the court dismissed Ms. Liu’s claim under Section 502(a)(1)(B). Finally, the court addressed Ms. Liu’s breach of fiduciary duty claim under Section 502(a)(3). Here, the court held that the (a)(3) claim did not arise from a separate injury or seek a different remedy of the (a)(1)(B) claim, rendering it duplicative. Further, the court held that Ms. Liu’s complaint failed to allege a breach of fiduciary duty, as the record demonstrated that Kaiser complied with the plan terms. Thus, the court concluded that the complaint failed to state claims for relief and therefore granted the motion to dismiss.

Provider Claims

Second Circuit

Biodiagnostic Labs v. Aetna Health Inc., No. 23-cv-9571 (BMC), 2024 WL 3106169 (E.D.N.Y. Jun. 23, 2024) (Judge Brian Cogan). Plaintiff Biodiagnostic Labs, Inc. brought eight actions against a variety of health insurance companies and benefit managers. In them, the lab seeks payment to reimburse it for COVID-19 diagnostic testing it provided to insured patients throughout the pandemic. Some, but not all, of the healthcare plans at issue are governed by ERISA. The patients assigned their rights to the provider for the tests. Plaintiff is suing on behalf of the assigned patients. All eight of the actions were consolidated for this decision ruling on defendants’ motions to dismiss, “since those motions raise the same legal issues.” First, all defendants sought dismissal of the claim for relief under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. They argued, and the court agreed, that the CARES Act does not include a private right of action to sue. Next, the court concluded that to the extent plaintiff’s breach of contract claims fall under ERISA-governed healthcare plans, they are preempted by ERISA “and plaintiff must pursue the dispute resolution procedures set forth in ERISA and in those plans.” Finally, the court declined to exercise supplemental jurisdiction of the state law claims for any of the non-ERISA policies. However, the court noted that dismissal of these claims was without prejudice to recommencement in state court. For these reasons, the court granted defendants’ motions to dismiss.

Third Circuit

Advanced Gynecology & Laparascopy of N. Jersey v. Cigna Health & Life Ins. Co., No. 19-22234 (ES) (MAH), 2024 WL 3159414 (D.N.J. Jun. 25, 2024) (Judge Esther Salas). Plaintiffs in this action are out-of-network New Jersey-based healthcare providers. In this lawsuit asserting claims under ERISA, RICO, and state law, the providers accuse Cigna Health and Life Insurance Company and its subsidiaries of systematically underpaying emergency and elective healthcare services through a series of complex and fraudulent processes and procedures. The complaint further alleges that rather than reimbursing the providers in the amounts they assert they are entitled to under the plans, federal and state law, and by Cigna’s promises, Cigna utilizes a tangled repricing web to enrich itself at their expense, as well as at the expense of patients and healthcare plans. Overall, the providers allege they were underpaid 1,677 times for different claims they submitted to Cigna. Plaintiffs have faced difficulties getting their action past defendants’ challenges to their pleadings. In a previous order the court granted Cigna’s motion to dismiss. In response, plaintiffs filed their third amended complaint alleging violations of ERISA for breach of fiduciary duties and failure to pay benefits, RICO conspiracy violations, and state law breach of contract and breach of the covenant of good faith and fair dealing. Once again the Cigna defendants moved to dismiss. This time their motion was granted by the court with prejudice. To begin, the court agreed with defendants that “Plaintiffs have once more failed to sufficiently allege that they were underpaid in violation of Plan terms.” The court stressed its view that “it is inappropriate to conflate billed charges with normal charges,” and that plaintiffs’ underpayment claims for both elective and emergency services hinge on allegations that improperly conflated normal and full-billed charges. This was especially true, the court said, where “we are dealing with twenty-three different healthcare providers, thousands of different patients, and various different procedures.” Accordingly, the court deemed plaintiffs’ Section 502(a)(1)(B) ERISA claim insufficient to put defendants on notice that they failed to reimburse the provider’s normal charges for each of the medical procedures at issue. Moreover, the court explained that dismissal was with prejudice because “Plaintiffs have had four chances to plead a proper § 502(a)(1)(B) claim (with clear instructions from the Court on how to do so that went unfollowed), and thus further amendment appears futile.” In the next section, the court dismissed plaintiffs’ ERISA fiduciary breach causes of action. It ruled that the providers lacked standing to allege their fiduciary duty claims for disgorgement of profits, agreeing with defendants that the only direct victims of the alleged embezzlement scheme are the plan sponsors. “There is no indication in the Third Amended Complaint that [the cost-containment fees described by Plaintiffs] would have gone to Plaintiffs if Defendants had acted as Plaintiffs allege they should have and paid Plaintiffs their full normal charges – such an argument is simply speculative.” Thus, the court found that plaintiffs failed to sufficiently allege an injury to themselves stemming from defendants’ alleged breach of fiduciary duties. Additionally, the court further noted, “Plaintiffs’ ERISA-based claims of breach of fiduciary duties of loyalty and due care necessarily fail because these claims derive from the allegation that Defendants underpaid Plaintiffs in violation of the relevant Plans, and Plaintiffs have not, as described above, ‘plausibly pleaded that Cigna wrongfully withheld benefits.’” Thus, the court dismissed the fiduciary breach claims. The court similarly dismissed plaintiffs’ RICO claims for failure to allege RICO injury or causation. “Plaintiffs have once more failed to sufficiently allege that they were underpaid under the Plans…They have thus also failed to allege an injury caused by Defendants’ RICO violations.” Finally, the court declined to exercise supplemental jurisdiction over the remaining state law causes of action. For these reasons, the court granted defendants’ motion to dismiss in its entirety, and plaintiffs were denied leave to amend their complaint further.

Abira Med. Labs. v. Blue Cross & Blue Shield of Mont., No. 23-20755 (GC) (JBD), 2024 WL 3199967  (D.N.J. Jun. 26, 2024) (Judge Georgette Castner). As Your ERISA Watch has reported, Abira Medical Laboratories, LLC filed more than forty actions against insurance companies, welfare funds, healthcare plans, and third-party administrators for failure to pay for laboratory testing, including for COVID-19 tests. We have selected this decision as an exemplar, but several other Abira decisions were also issued this week with similar rulings. Much like previous Abira decisions Your ERISA Watch has covered, the court here held that Abira could not invoke ERISA’s jurisdictional provisions without asserting a cause of action under ERISA. Instead, the laboratory asserted seven state law causes of action for breach of contract, breach of the covenant of good faith and fair dealing, fraudulent misrepresentation, negligent misrepresentation, promissory estoppel, equitable estoppel, and quantum meruit/unjust enrichment. Because Abira did not assert a cause of action under ERISA, or even allege that the plans at issue are governed by ERISA, this court, like others in the Third Circuit have done, held that ERISA was irrelevant to the jurisdictional analysis. “As to Defendants’ communications with Plaintiffs about alleged claims, district courts in the Third Circuit also repeatedly rejected nearly identical allegations as creating specific jurisdiction. These courts have found that a physician’s unilateral choice to send a patient’s specimen to a laboratory for testing does not create personal jurisdiction over the patient’s insurer in the laboratory’s home state when the insurer simply pays the resulting claims or communicates with the laboratory about the claims.” Thus, like those other cases, the court here also held that Abira failed to establish that Blue Cross & Blue Shield of Montana had the requisite minimum contacts with New Jersey to avail itself of the forum. Accordingly, the court concluded that it lacks specific jurisdiction over defendant in this matter. In addition, the court determined that Abira failed to establish that general jurisdiction exists over Blue Cross & Blue Shield of Montana in New Jersey as its only argument in favor of general jurisdiction was that Blue Cross of Montana did business with it and it is a New Jersey corporate citizen. Finding that it lacks both specific and general jurisdiction in this action, the court dismissed the case without prejudice.

Subrogation/Reimbursement Claims

Eleventh Circuit

Spain v. Bice, No. 7:23-cv-1681-RDP, 2024 WL 3106898 (N.D. Ala. Jun. 24, 2024) (Judge R. David Proctor). This action stems from a 2019 multi-car accident where a minor child, Hunter Bice, was injured. Plaintiffs Pamela Spain, Jack Kendrick, Calera Industrial Supply, LLC, Sentry Insurance, and Alfa Mutual Insurance filed this interpleader action in state court in Alabama, naming Hunter and Shannon Bice, Royce McKinney, United Healthcare Insurance, and Optum Corporation as defendants. The ERISA-governed employee benefit plan then got involved. It answered the bill of interpleader and asserted that it provided healthcare coverage to Hunter Bice and that it had a subrogation interest under the plan’s reimbursement clause. Plaintiffs subsequently added the plan as a defendant in their action. Over the next three years, the interpleader action “sat dormant” as the Bices pursued a personal injury suit related to the car crash. Once that case settled, the interpleader once again became active, and plaintiffs dismissed Royce McKinney as a defendant. They also paid the entirety of the insurance proceeds that were the focal point of the interpleader action to Hunter Bice. Then the Bice family filed a crossclaim against United for compensatory and punitive damages and a third party claim against UAB hospital to invalidate its lien related to Hunter Bice’s medical treatment. Shortly after, the Bice family added the plan as a crossclaim defendant seeking a declaratory judgment requiring either United or the plan to pay the remaining medical bills. United and Plan responded to the crossclaims by filing a notice of removal, asserting that the claims are subject to ERISA and establish federal question jurisdiction. The Bices did not consent to removal and filed this instant motion to remand their action back to state court. They argued that a crossclaim cannot serve as the basis for removal to federal court and that removal was improper as it was both untimely and violated the unanimity rule, which requires all defendants who have been properly serve to consent to the removal. The court agreed, and granted the motion to remand. “The court finds that a crossclaim cannot authorize removal, and, even if it could, United and the Plan’s Notice of Removal violates the unanimity rule.” The court flatly rejected the idea that a crossclaim creates a separate removable civil action. Further, the court declined to “bypass procedural requirements” to realign the parties. It stated, “here, based on the Bill of Interpleader, the parties are already properly aligned according to their interests.” Thus, the court expressed that it could not, and was not inclined to, realign plaintiffs and defendants. Absent the consent to removal of all of the defendants, and in light of the fact that a crossclaim cannot authorize removal, the court granted the motion to remand.