Cogdell v. Reliance Standard Life Ins. Co., No. 1:23-CV-01343 (AJT/JFA), __ F. Supp. 3d __, 2024 WL 4182589 (E.D. Va. Sept. 11, 2024) (Judge Anthony J. Trenga)
Sometimes here in ERISA World it is easy to feel insulated from the momentous decisions issued every year by the Supreme Court. Every so often the court dips its toes in the ERISA pool, but usually finds the water not to its liking and moves on to other things.
So, it was tempting to relax at the end of the 2023-24 term, which had no cases explicitly focused on ERISA issues. But some decisions extend their tentacles everywhere, and this year the decision most likely to do that is Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024).
In Loper Bright, the Supreme Court walked back 40 years of precedent in discarding the “Chevron doctrine.” Under the court’s prior decision in Chevron v. NRDC, federal courts were required to defer to reasonable interpretations by federal agencies of the statutes they enforce. Loper Bright determined that this approach was wrong because it is the duty of the courts to “exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the [Administrative Procedure Act, or APA] requires.” The court characterized the contrary doctrine announced in Chevron as “unworkable” and thus overruled it.
Enter Heather Cogdell, an engineer with one degree from MIT and two from the University of Pennsylvania. Cogdell worked for MITRE, a non-profit that manages federally funded research and development centers. Cogdell was the Principal Business Process Engineer for MITRE and was “highly capable and highly energetic.”
Unfortunately, Cogdell became infected with COVID-19 and her health rapidly declined. She now suffers from long-COVID symptoms such as intense fatigue, headaches, shortness of breath, and dizziness. Eventually, she was forced to stop working, after which she filed a claim for benefits with Reliance Standard Life Insurance Company, the insurer of MITRE’s ERISA-governed employee long-term disability plan.
Reliance denied Cogdell’s claim, determining that she did not meet the plan’s definition of disability. Cogdell appealed, but Reliance missed the 45-day deadline set forth in the Department of Labor’s claim regulations for responding to appeals. Cogdell then brought this action.
Because cases like these often turn on the standard of review, the parties focused their arguments on this issue first. Cogdell argued that because Reliance did not decide her appeal in a timely fashion under the Department of Labor’s regulations, it had forfeited the right to assert that its decision was entitled to deference as outlined in the plan documents, and thus the appropriate standard of review was de novo.
Citing Loper Bright, Reliance took a big swing and argued that the regulation’s 45-day appeal deadline was “invalid because it exceeds the grant of authority delegated to the Secretary by statute to promulgate regulations and therefore any failure on its part to complete its review within that period should not destroy the deference to its decision that it would otherwise enjoy.”
The court noted that this was not a case-specific argument. Instead, it was, “in substance, a facial attack on the regulation[.]” The court rejected Reliance’s assault for three reasons.
First, the court ruled that Reliance’s challenge was untimely because Reliance “does not explain how Loper Bright changed the landscape in such a way to permit Reliance now to bring a facial challenge that it could not have brought previously.” The regulation had been the same for many years, Reliance had never challenged it before, and thus could not now.
Second, “there is an established procedure for facial challenges to federal regulations under the APA,” i.e., a suit against the Secretary of the Department of Labor under 5 U.S.C. § 706. Reliance had not filed such a suit, and its argument in this case “frustrates one of the intended legislative purposes of the APA, with its six-year statute of limitations that Reliance would otherwise face in bringing such a challenge.”
Third, and finally, the court ruled that even if Reliance was not barred from making its Loper Bright argument, it would still fail. The court noted that “the grant of authority under ERISA is exceedingly broad,” and the Department’s 45-day appeal timeline fell squarely within that authority. Indeed, “as a substantial majority of other courts have concluded, setting time limits for administrative claim exhaustion is both necessary and appropriate for a ‘full and fair review’ of claim denials because without time limits for claim exhaustion, plan administrators would have no incentive to review and determine expeditiously the appeals brought to them, leaving vulnerable claimants in limbo indefinitely without judicial recourse.”
Reliance argued that the Department’s regulation dictated the standard of review, which was impermissible because the standard of review must be determined by courts, not agencies. But the court responded that “the regulation merely sets a time limit for claim exhaustion; it does not mandate or direct the courts to apply a particular standard of review as Reliance suggests.” The court noted other cases where courts diverged over the appropriate standard of review in cases where the regulation was not followed, thus indicating that the regulation was not controlling as Reliance suggested.
Having dispensed with Reliance’s facial challenge to the regulation, the court then applied it to Cogdell’s case and determined that Reliance “departed from the procedural requirements of the governing regulation.” The regulation requires claim administrators to decide appeals within 45 days unless there are “special circumstances,” and the court found that no such circumstances existed in Cogdell’s case because Reliance had the time and the information it needed to decide her appeal. Furthermore, “an independent medical review without more is not a ‘special circumstance’ that would make a 45-day extension appropriate.” As a result, because Reliance violated ERISA regulations, its decision was not entitled to deference and de novo was the appropriate standard of review.
The court then turned to the merits of the case, and briskly ruled that Cogdell “satisfied the proof of loss criteria as outlined by the Policy[.]” Cogdell had the support of her physicians, had “provided Reliance with medical studies about long-COVID and the difficulties in diagnosing it definitively,” and had demonstrated that she “was unable to perform all of the material aspects of her job as a result of her disability,” including solving complex problems, leading and working in project teams, managing critical sponsor relationships, and mentoring and developing staff. The court rejected Reliance’s arguments to the contrary, largely because they were based on medical reviews that were not provided in a timely fashion to Cogdell, and thus were not considered by the court.
As a result, the court granted Cogdell’s motion for judgment, denied Reliance’s motion for summary judgment, and ordered the parties to confer about the proper remedy. The Department of Labor’s claims procedure regulations remain safe for now.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Breach of Fiduciary Duty
Fourth Circuit
Naylor v. BAE Sys., No. 1:24-cv-00536 (AJT/WEF), 2024 WL 4112322 (E.D. Va. Sep. 5, 2024) (Judge Anthony J. Trenga). Plaintiff Erin Naylor is a current employee of the defense contractor, BAE Systems, Inc., and a participant in its defined contribution plan, the BAE Systems Employees’ Savings Investment Plan. Ms. Naylor filed this action against the fiduciaries of the plan alleging breaches of fiduciary duties, violation of ERISA’ anti-inurement provision, prohibited transactions, and co-fiduciary breaches. Ms. Naylor’s claims fall into three broad buckets relating to: (1) improper use of forfeited employer contributions; (2) excessive fees paid to the plan’s recordkeeper, Professional Management Program, for managed-account services; and (3) excessive legal fees paid to counsel, Groom Law Group. Two motions were before the court. Defendant BAE Systems, Inc. moved to dismiss the complaint, while Ms. Naylor moved to disqualify Groom Law Group as defendants’ counsel. In this decision the court granted defendants’ motion and denied plaintiff’s motion. It began with the motion to dismiss, and started by analyzing the fiduciary breach claims relating to the forfeitures. The plan document outlines how forfeited employer contributions are to be used. First, the plan mandates that forfeitures “shall” be used to offset future employer contributions for plan members who terminate their employment with the company before they are fully vested but who are subsequently reemployed with the company within the next five years. The plan also requires that forfeited employer contributions be used to reduce future employer contributions. These mandatory plan provisions are somewhat in tension with the discretion the plan confers to its fiduciaries with respect to forfeited employer contributions as well as with the SPD terms which provide that forfeitures “may be used to offset obligations of (BAE Systems) to make contributions to the Plan or to reduce or offset administrative expenses of the Plan in the discretion of the Plan Administrator to the extent that it is legally permissible for these expenses to be paid.” Nevertheless, Ms. Naylor contends that forfeited contributions have consistently been used for the purpose of reducing future employer contributions to the plan. According to the complaint, this use of forfeitures is disloyal and inures to the benefit of the employer. The court disagreed. It stated, “Plaintiff’s position regarding forfeitures reduce to an argument that Defendant was required by ERISA to disregard the terms of the Plan, and contrary to the terms of the Plan, prioritize the use of forfeitures for, inter alia, the payment of administrative costs or a windfall to Plan participants, a proposition uniformly rejected by the courts.” Moreover, to the extent that defendant wrote the plan terms, the court was clear that this is a settlor duty, non-fiduciary in nature. Thus, the court held that plaintiff could not sustain a fiduciary breach claim, nor a prohibited transaction claim, which it found to be derivative. Further, the court rejected Ms. Naylor’s view of ERISA’s anti-inurement provision. Accordingly, the court dismissed all of the causes of action related to the use of forfeited employer contributions. And it did the same for the fee claims too. The court was not persuaded that the recordkeeping fee of .45% of all assets was plausibly imprudent and it rejected plaintiff’s comparison to the Vanguard target-date fund offered through the plan which charged only 0.05% in fees despite allegedly providing more services than Professional Management Group. Likewise, the court expressed that “there are no facts alleged with respect to the services the Groom Law Group provided to the plan as compared to services provided to the other clients identified.” The court thus brushed aside the allegations that the plan imprudently paid the law firm roughly $700,000 annually despite Groom Law Group charging similarly sized plans only ten or twenty thousand dollars. For these reasons, the court granted the whole of BAE System’s motion to dismiss. Finally, the court denied Ms. Naylor’s motion to disqualify defendant’s counsel. The court was not convinced that the fiduciary exception to the attorney-client privilege has the effect of creating an attorney-client relationship with the plan itself for the purpose of disqualifying a fiduciary’s attorney in a suit brought on behalf of the plan. In fact, the court called such a theory a “legal fiction,” and flatly rejected the notion that the Groom Law Group was operating as counsel for both the plaintiff and the defendant in the same case in violation of the rules of professional attorney conduct.
Class Actions
Fourth Circuit
In re MedStar ERISA Litig., No. JKB-20-1984, 2024 WL 4110941 (D. Md. Sep. 5, 2024) (Judge James K. Bredar). Plaintiff Elsa Reed is a participant of the MedStar Health, Inc. Retirement Savings Plan. She filed this action in July 2020 against MedStar Health, the company’s board of directors, and the plan’s committee alleging breaches of fiduciary duties in the management of the plan’s fees and investments. Ms. Reed and the defendants reached an agreement to settle the case after the court certified the class and discovery had concluded, but before the action was set to go to trial. Earlier this year the court granted preliminary approval of the settlement and on September 5, 2024 the court held a fairness hearing. Before the court here was plaintiff’s motion for final approval of class action settlement and attorneys’ fees, expenses, and case contribution awards. The court granted plaintiff’s motion in this order. First, the court maintained certification of the settlement class, affirming its earlier conclusions that the class satisfies the prerequisites of Federal Rules of Civil Procedure 23(a) and 23(b)(1). Second, the court found that the settlement class was properly notified. Third, the court concluded that the $11.8 million settlement was fair, reasonable, and adequate. It stated that the settlement was reached as a result of an arms-length and good faith negotiation with the involvement of experienced counsel and a highly respected neutral mediator of complex class actions. In addition, the court found that the settlement was appropriate when factoring in the risks and costs of continued litigation, including the difficulty in proving damages, and because the recovery achieved is comparable to other ERISA class action litigation. Moreover, the court recognized that an independent fiduciary reviewed the proposed settlement and blessed it in light of these same factors. Thus, the court granted the settlement final approval. It then turned to the requested one-third class counsel fee award of $306,322.21. Although one class member objected to the fees, the court viewed the requested award as reasonable and appropriate. It stated that a one-third settlement fund recovery is typical in these types of complex ERISA cases, especially because they require highly skilled and specialized attorneys “of the highest caliber.” Further supporting the fee award, the court held, was the lodestar cross-check, as the attorneys’ lodestar amounted to $4,082,394.50 which represents a 0.96 negative multiplier. In addition to approving the requested attorneys’ fee award, the court also approved in full plaintiff’s requested $306,322.21 in expenses. This figure was primarily made up of experts’ fees, and also included the costs of depositions, filing and mailing services, and other reasonable litigation-related expenses. The court concluded that these expenses were appropriate. Finally, the court awarded Ms. Reed a $15,000 case contribution service award. The court held that this award amount was appropriate given her contribution to and participation in all phases of the litigation, and compensated her accordingly. For the foregoing reasons, the court granted plaintiff’s motion and dismissed the case.
Fifth Circuit
McWhorter v. Service Corp. Int’l, No. 4:22-cv-02256, 2024 WL 4165074 (S.D. Tex. Sep. 11, 2024) (Judge Charles Eskridge). Plaintiffs Lakeshier Clark and Anitza Hartshorn moved to certify a class of all the participants and beneficiaries of the Service Corporation International (“SCI”) defined contribution plan in this fiduciary breach ERISA action brought against SCI and the other fiduciaries of the plan. Plaintiffs’ claims break down into two groups – share class claims and recordkeeping fee claims. Defendants opposed certification. They challenged the named plaintiffs’ Article III standing and the requirements of Rule 23. The court began its discussion with standing. It noted that district courts are currently adopting two different approaches regarding whether participants in defined contribution ERISA plans have standing to challenge funds in which they did not invest. “A more permissive approach suggests that Plaintiffs categorically have standing to challenge funds they didn’t invest in based on the derivative nature of ERISA suits.” On the other hand, many courts reject this approach and instead hold that plaintiffs must be personally invested in the challenged funds to show they have a concrete particularized injury. This court aligned itself with the latter approach, holding that requiring the named plaintiffs to have invested in the challenged funds “accords with both Fifth Circuit and Supreme Court precedent.” Accordingly, the court concluded that the named plaintiffs only had standing to assert their share class claims with respect to the Invesco and Wells Fargo funds in which they invested, and that they failed to meet the requisite injury-in-fact necessary to challenge the Schwab, Vanguard, and State Street funds. Thus, the court denied the motion to certify the class with respect to these three class share funds and dismissed the claims with respect to these funds, without prejudice. From here, the decision took a decidedly friendlier stance to plaintiffs’ motion. The court moved on to assessing defendants’ challenges under Rule 23, and explained why it rejected each. First, the court evaluated the class under Rule 23(a). Because the class will encompass more than 23,000 individuals, the court stated that numerosity is satisfied. It also concluded that the nature of ERISA fiduciary breach claims satisfies commonality quite easily. The court took more time with the typicality requirement. Defendants argued that intra-class conflicts separate the members of the class. The court did not agree. Instead, it concluded that defendants’ conduct unites the members under the same legal theory, and that the plaintiffs “share the same essential characteristics with members of the putative class.” The court further stated that much of defendants’ challenge of the adequacy of representation was “simply a variation on the argument addressed above as to typicality.” Defendants also argued that the named plaintiffs are inadequate class representatives because they didn’t understand the ins and outs of the case during their depositions and therefore lack the knowledge necessary for their roles in the case. While the court agreed that the named plaintiffs have gaps in their knowledge regarding the complicated legal and financial issues involved in this action, it nevertheless concluded that they possess adequate knowledge to represent the class. The court considered the bigger picture, opining that if defendants’ position were upheld “then no (or very few) ERISA class actions would ever go forward for lack of adequate class representatives…leaving plan participants who aren’t lawyers or investment experts unable to redress their injuries.” Accordingly, the court certified the class under Rule 23(a). It also found that the class satisfies the requirements of Rule 23(b)(1)(A) as prosecuting separate actions runs the risk of creating incompatible standards of conduct for the defendants and inconsistent or varying adjudications for the individual class members. Finally, the court appointed McKay Law LLC, Wenzel Fenton Cabassa, PA, and the Law Office of Chris R. Miltenberger class counsel. Plaintiffs’ motion to certify was accordingly granted in part and denied in part, as explained above.
Disability Benefit Claims
Fourth Circuit
Lindsay v. Delta Pilots Disability & Survivorship Plan, No. C. A. 3:21-cv-02872-DCC, 2024 WL 4182144 (D.S.C. Sep. 13, 2024) (Judge Donald C. Coggins, Jr.). Former Delta Airlines pilot Bill Lindsay has qualified for long-term disability benefits under the Delta Pilots Disability & Survivorship Plan since 1998. This action involves offsets of Mr. Lindsay’s monthly payments from his pension benefits and the Plan’s determination that it had miscalculated the offsets and as a result had overpaid him $322,000.91 over 119 months. Mr. Lindsay appealed this determination. He argued on appeal that the administrative committee of the plan had the ability to discover the discrepancy at any time, starting in 2011 until it performed its audit in 2020, and that as the fiduciary of the plan it had the responsibility to ensure the offsets were appropriately calculated and applied. Mr. Lindsay maintained this position throughout his two-level internal appeal, and throughout the course of his litigation. He did not really contest the calculation itself nor the application of the plan’s offset provisions. Instead, he brought an ERISA action seeking equitable relief under Section 502(a)(3), requesting the court preclude the plan from recovering the overpayment due to laches. Both parties moved for judgment on the administrative record. Before the court addressed the merits, it first determined whether this case was properly brought under Section 502(a)(3) or if it is properly considered a benefit action under Section 502(a)(1)(B). The court agreed with defendants that this action should not be framed as a fiduciary breach suit, as in actual fact it is “a challenge to the Subcommittee’s determination of benefits. This challenge is provided for under 29 U.S.C. § 1132(a)(1)(B).” Moreover, as the plan grants the committee with discretionary power, the court reviewed the overpayment decision for abuse of discretion. The court then considered the Fourth Circuit’s eight Booth factors to determine the decision’s reasonableness. First, the court stated that the language of the plan “required the Committee to offset Plaintiff’s Long-Term Disability benefits and recoup the overpayments.” Second, the court stated that one of the goals of the Plan “was to ensure that all participants are paid fairly, and neither underpaid or overpaid.” It therefore weighed this factor in favor of defendants as well. Third, the court found that defendants handled Mr. Lindsay’s claim appropriately as they reviewed all of the information he submitted. Fourth, the court stressed that the committee’s position was consistent “during all phases of the appeal and with other overpayment decisions.” Fifth, the court concluded that the decision-making process was reasoned, principled, and thoroughly explained. The court also concluded that the sixth and seventh factors favored the Plan as defendants’ review of the claim “was consistent with ERISA’s claim management regulations.” Finally, the court determined that the plan had no conflict of interest or financial incentive based on the outcome of their benefit determination. Accordingly, the court saw all eight Booth factors as supporting the Plan’s determination. For this reason, the court entered judgment in favor of the Delta defendants and against Mr. Lindsay.
ERISA Preemption
Eleventh Circuit
Thorn v. Buffalo Rock Co., No. 3:24-cv-00588-HNJ, 2024 WL 4128298 (N.D. Ala. Sep. 9, 2024) (Magistrate Judge Herman N. Johnson, Jr.). Plaintiff Michael Thorn filed this case in Alabama state court against his employer, Buffalo Rock Company, asserting a claim for workers’ compensation benefits. A few months later, Mr. Thorn added a new defendant, Blue Cross and Blue Shield of Alabama, adding a claim for declaratory judgment against it. In his declaratory judgment claim, Mr. Thorn contends that Blue Cross has wrongly asserted a subrogation/reimbursement interest for benefits it paid related to the injury underlying his workers’ compensation claim. The healthcare plan states that Blue Cross has no duty to cover Mr. Thorn’s medical expenses if those expenses arose from the same injury for which he received workers’ compensation benefits. But Mr. Thorn maintains that “Blue Cross’s subrogation/reimbursement interest concerns medical expenses arising from a separate injury to his neck, not from the workplace injury.” Once Blue Cross was served, it removed the action to federal court. Blue Cross argues that the declaratory judgment claim is completely preempted by ERISA. Mr. Thorn disagreed and moved to remand his action back to state court. To begin, the court severed and remanded the workers’ compensation claim back to Alabama state court, as federal courts have no jurisdiction over workers’ comp claims. However, the court denied Mr. Thorn’s motion to remand his declaratory judgment claim against Blue Cross. As an initial matter, there was no dispute that the healthcare plan at issue is governed by ERISA. Thus, the discussion focused instead on whether ERISA preempts the declaratory judgment claim. The court agreed with the insurer that the claim against it is completely preempted by ERISA. For one, the court stressed that Mr. Thorn’s claim cannot be resolved without consulting the plan. “[A]ssessing whether Blue Cross properly asserted a subrogation/reimbursement interest will necessitate consideration of the Plan language, bringing the claim within the ambit of the Plan. Moreover, the court stated that Blue Cross as a plan fiduciary could have brought a subrogation claim under ERISA Section 502(a)(3), and that ERISA provides the only avenue to resolve the parties’ dispute. For much the same reason, the court held that no independent legal duty supports Mr. Thorn’s claim. Accordingly, the court determined that it possesses subject matter jurisdiction over the claim against Blue Cross and therefore denied the motion to remand this half of the case.
Exhaustion of Administrative Remedies
Sixth Circuit
Melton v. Minnesota Life Ins., No. 6:23-CV-174-REW-HAI, 2024 WL 4182699 (E.D. Ky. Sep. 13, 2024) (Judge Robert E. Wier). The beneficiary of an accidental death and dismemberment (“AD&D”) policy, plaintiff Crystal Melton, brought this action against Minnesota Life Insurance Company after her claim for benefits under the ERISA-governed policy was denied. Ms. Melton did not pursue an administrative appeal of her claim following the denial. Instead, she immediately pursued legal avenues and filed a lawsuit in state court in Kentucky. Minnesota Life removed the action to federal court. Ms. Melton maintains her state law breach of contract claim, and also asserts ERISA causes of action, including allegations that the denial of benefits violated ERISA’s claims regulations. Minnesota Life moved for summary judgment. The insurer argued that Ms. Melton failed to exhaust her administrative remedies before filing her lawsuit and that the court must dismiss her ERISA claim for failure to exhaust. To support its position, Minnesota Life presented the Summary Plan Description (“SPD”) which it contends specifically outlines the administrative appeals process. In response, Ms. Melton countered that the plan documents themselves do not contain any administrative appeals requirements or procedures. She argued that Sixth Circuit precedent in Wallace v. Oakwood Healthcare, Inc. 954 F.3d 879 (6th Cir. 2020), forecloses any exhaustion requirement here because a fiduciary can only avail itself of the exhaustion requirement if its underlying plan document details the required internal appeals procedures. The court agreed that Wallace is “instructive and binding.” Under the guidance of the Supreme Court’s precedent in Amara, the court concluded that the SPD is not the governing plan document, only a summary. Instead, the court concluded that the AD&D Insurance Policy and the Plan of Insurance document within the AD&D certificate were the plan documents. The language of these documents, as well as the language of the SPD, supported this conclusion, particularly as the SPD indicated that the AD&D Insurance Policy “is the relevant governing document.” The court also rejected defendant’s attempt to assert that its denial letter constituted a controlling plan document. The court was therefore left with the AD&D Insurance Policy document and its terms which “undisputedly omits any claims procedures, procedures for appealing adverse benefit determinations, explicit exhaustion requirements, or remedies for denied claims.” As such, the court concluded that the plan here, as in Wallace, “ultimately violates § 2520.102-3(s),” and that the “SPD and the denial letter do not cure these violations.” In no uncertain terms the court wrote that Minnesota Life could not “circumvent regulatory requirements and attempt to enforce appeal procedures that it neglected to detail in its binding plan documents.” Finally, because the plan does not comply with its ERISA obligations to establish a reasonable claims handling procedure, the court deemed Ms. Melton to have exhausted her administrative remedies and thus she properly filed her lawsuit directly with the court following the denial of her claim for benefits. Accordingly, the court denied Minnesota Life’s motion for summary judgment.
Medical Benefit Claims
Tenth Circuit
Amy G. v. United Healthcare, No. 2:17-cv-00413-DN-DAO, 2024 WL 4165783 (D. Utah Sep. 12, 2024) (Judge David Nuffer). United Behavioral Health defines “Wilderness Therapy” as “a behavioral health intervention targeted at children and adolescents with emotional, addiction, and/or psychological problems. The intervention typically involves the individual being immersed in the wilderness or a wilderness-like setting, group-living with peers, administration of individual and group therapy sessions, and educational/therapeutic curricula including back country travel and wilderness living skill development.” Although this definition has a neutral tone, internally United Behavioral Health’s Clinical Technology Assessment Committee has assessed wilderness therapies and concluded they are potentially abusive, harmful, and ineffective. Thus, United has designated the treatment as experimental and investigational. This action arises from a minor child’s stay at a Utah-based mental health facility, Second Nature Wilderness Family Therapy, for three months in early 2015, and United Healthcare’s denial of his mother’s claims for reimbursement of this care. After exhausting the internal claims process, plaintiff Amy G. filed this action against the United Healthcare defendants asserting claims for benefits and equitable relief under ERISA. The parties filed cross-motions for judgment on the benefit claim. Defendants also moved for judgment on the Section 502(a)(3) claim. The court began its discussion by addressing the standard of review. The parties both acknowledged that the plan grants United Healthcare discretionary authority to determine benefit eligibility. Nevertheless, plaintiff argued that the standard of review should be de novo because defendants failed to comply with ERISA’s and the Plan’s claims procedure requirements and because defendants failed to sufficiently engage in meaningful analysis when making their benefits decision. The court disagreed. It held that defendants “substantially complied” with ERISA’s regulations and that any procedural irregularities that occurred did not require deviation from the deferential review standard. Accordingly, the court reviewed the denial under the arbitrary and capricious standard of review. However, in the end, defendants’ denials did not withstand even arbitrary and capricious scrutiny. Although the court concluded that United’s use of and reliance on its own internal assessment of wilderness therapy was not in and of itself an abuse of discretion, it nevertheless concluded that defendants failed to provide a sufficient explanation and analysis for the denial of benefits. “None of Defendants’ benefits denial letters included any explanation or analysis of how or why services A.G. received at Second Nature qualify as ‘Wilderness Therapy’ under the 2015 [internal guidelines]. There are no citations to A.G.’s medical records or facts, no description of the services A.G. received at Second Nature, and no application of clinical judgment discussion of how or why these services are ‘Wilderness Therapy’… Defendants’ benefits denial letters contain only conclusory statements that the treatment A.G. received at Second Nature is ‘Wilderness Therapy.’” The court was clear that defendants’ analysis was insufficient and did not rise to the level of a meaningful dialogue. Therefore, the court concluded that United’s determination that the plan excluded the child’s treatment at Second Nature was arbitrary and capricious. Accordingly, the court entered judgment in favor of plaintiff on her claim for benefits. Although the family succeeded in challenging the denial of benefits, the court did not award them the benefits. Instead, because it based its reasoning on the administrator’s flaws in explaining the grounds of its decision, the court concluded that remand to the insurance company for reevaluation and redetermination of the claim for benefits was necessary. However, the court cautioned United that it must only assess the claim under the plan’s exclusion for experimental, investigation, or unproven services, and that “any denial of coverage must include specific explanation and analysis, as required by ERISA and its regulations.” As for the equitable relief claim, the court granted summary judgment in favor of defendants because “Plaintiffs represent that they are no longer pursuing equitable relief.” Finally, the court expressed that it would not determine whether to award prejudgment interest and attorneys’ fees until after United is finished with its reevaluation and redetermination of the family’s claim for benefits.
Pension Benefit Claims
First Circuit
Tavares v. Bose Corp., No. 22-cv-10719-DJC, 2024 WL 4145767 (D. Mass. Sep. 11, 2024) (Judge Denise J. Casper). Plaintiff Michael E. Tavares worked for the Bose Corporation over two distinct periods. First, Mr. Tavares was employed with the company from 1995 to 1999. When his employment ended, Mr. Tavares was automatically paid a lump sum from the company’s defined benefit pension plan of $1,269.98. Years later, in 2016, Mr. Tavares was rehired by Bose. At the time of the rehire, Bose provided an overview of its various employee benefit programs, including its defined benefit pension plan. The benefits summary stated that the defined benefit plan vests beginning after three years of service, and that participants are fully vested after seven years of service. The plan document contained more. It included a provision which explained breaks in service. That section outlined that if a participant is rehired by Bose, years of service in which the participant previously received full payment of their vested accrued benefit “shall be disregarded” unless the participant repays the payment received plus interest “before the latter of (1) two years after the Participant is rehired by the Employer or (2) the earlier of (a) five years after the Participant is rehired by the Employer, (b) the close of the first period of five consecutive one-year Breaks in Service commencing after the original payment to the Participant, or (c) if the payment was other than on account of separation from service, five years after the original payment.” 2018 came and went and Mr. Tavares did not pay back the $1,269.98 with interest to Bose. Nothing happened until the next year, 2019, when Mr. Tavares emailed to inquire whether his previous years working at Bose counted towards his pension calculation. He was informed at the time by a Bose retirement plans program manager that he received his “vested accrued benefit back in 1999 and did not pay it back to the plan within two years of reemployment so [his] prior services did not count” toward his pension service. Another year went by, and in 2020, Mr. Tavares was terminated from Bose as part of layoffs to reduce its workforce. At this time, Mr. Tavares “formally requested” that Bose allow him to repay the $1,269.98 with interest to be fully vested in the Plan. Bose did not do so. It denied his claim, once again maintaining that the plan required him to repay his 1999 benefits within two years from his rehire date. Mr. Tavares appealed. He argued that the plan language required repayment after either two years of the rehire or five years after the participant is rehired. He therefore maintained that his repayment request was timely, and brought this action under ERISA to challenge Bose’s determination. Mr. Tavares brought two causes of action: a claim for benefits under Section 502(a)(1)(B), and a claim for equitable relief under Section 502(a)(3). The parties filed competing motions for summary judgment under arbitrary and capricious review. The court started its analysis by noting that Bose had the discretion to interpret the plan to resolve any ambiguities when evaluating claims. When exercising that discretion, Bose interpreted the plan provision to mean that for employees who have “experienced five consecutive one-year Breaks in Service, the two year repayment window applies.” To the court, this reading was entirely reasonable. On the other hand, the court found Mr. Tavares’s reading of the plan language flawed because it contemplates repayment either two years after being rehired or five years after the rehire, and this interpretation would render the “earlier of” provision superfluous and nonsensical. Therefore, the court held that defendants’ interpretation of the plan’s provision was not arbitrary and capricious. It granted Bose’s motion for summary judgment on claim one and denied Mr. Tavares’s motion. The court’s ruling on the benefits claim had trickle-down effects on his fiduciary breach claim as well. “Bose cannot be found to have breached a fiduciary duty to Tavares based upon a reasonable interpretation of Plan terms.” The court stated that even assuming equitable estoppel and surcharge were appropriate forms of equitable relief under Section 502(a)(3) (a matter the First Circuit has yet to conclusively rule on), Mr. Tavares would not be entitled to either remedy here because it was not reasonable for him to rely upon the benefit summary “that seeks to modify the express terms of the plan.” Moreover, the court stressed that defendants had no affirmative duty to inform Mr. Tavares directly of the two-year repayment window, but even if it did, “such an omission does not constitute a ‘definite misrepresentation’ as required for estoppel.” Finally, the court stated that Mr. Tavares failed to adduce evidence that Bose’s statements were inaccurate concerning the payment timeframe. For these reasons, Bose was also granted summary judgment on count two, and Mr. Tavares’s motion for summary judgment was denied.
Pleading Issues & Procedure
Third Circuit
Malik v. Metrpolitan Life Ins. Co., No. 23-21337, 2024 WL 4117342 (D.N.J. Sep. 9, 2024) (Judge Jamel K. Semper). Pro se plaintiff Tahir Malik filed an action against Metropolitan Life Insurance Company (“MetLife”) in New Jersey state court seeking coverage for an estimated $20,000 worth of dental care under an employer-sponsored dental plan. MetLife removed the action to federal court. It maintains that the plan is governed by ERISA, that ERISA completely preempts Mr. Malik’s state law claims, and that Mr. Malik’s action is premature because he never completed the administrative appeals process before filing suit. In fact, Mr. Malik never submitted a claim for benefits at all before commencing litigation. At the time his suit was filed, “no dental procedures were performed and no claim for benefits was outstanding. Plaintiff filed suit based on MetLife’s response to Plaintiff’s dentist seeking an estimate of payment for a crown.” After removing the action, MetLife moved for summary judgment. Mr. Malik never responded to MetLife’s motion, and as a result, the motion was unopposed. In this decision the court granted MetLife’s summary judgment motion. The court agreed that the plan met the low threshold to be governed by ERISA as it is an employee benefit plan established by an employer and the plan document details the intended benefits, the class of beneficiaries, the source of financing, and the procedures for receiving benefits. Further, the court held that Mr. Malik is a plan participant who can bring a claim for benefits under ERISA, and that his state law claims seeking benefits under the plan are completely preempted by ERISA’s remedial scheme. Finally, the court ruled that because Mr. Malik never filed a claim for benefits before suing, “and all claims submitted after the initiation of this litigation were paid,” there is no active dispute between the parties and no genuine issues of material fact that preclude granting summary judgment in favor of MetLife.
Ninth Circuit
McIver v. Metropolitan Life Ins. Co., No. 23-55306 , __ F. App’x __, 2024 WL 4144075 (9th Cir. Sep. 11, 2024) (Before Circuit Judges Bade and Forrest, and District Judge Curiel). Plaintiff-appellant Keith McIver appealed the district court’s decision dismissing his complaint with prejudice for failure to state a claim. In his action, Mr. McIver sued the Boeing Company, the company’s employee benefit plans committee, and Metropolitan Life Insurance Company (“MetLife”) under ERISA for breach of fiduciary duty and for recovery of plan benefits. Specifically, Mr. McIver alleges that defendants breached their fiduciary duties to him by charging, deducting, and accepting premiums for his dependent life insurance policy covering his ex-wife after receiving his Qualified Domestic Relations Order (“QDRO”) notice confirming his divorce. In addition, Mr. McIver alleges that MetLife wrongly denied his claim for benefits because of the policy’s incontestability clause. On appeal, the Ninth Circuit addressed the district court’s dismissal of both causes of action, beginning with the fiduciary breach claim. First, the court of appeals held, “[t]o the extent that McIver is challenging Boeing’s and [the committee’s] conduct of solely calculating and collecting life insurance premiums, we affirm the district court’s dismissal of McIver’s breach of fiduciary duty claim because the district court correctly concluded that these actions were ministerial.” However, the court ruled that to the extent Mr. McIver is alleging that Boeing and the committee were performing fiduciary functions when they continued to charge, collect, and deduct premium payments after receiving the QDRO, this was a plausible breach of fiduciary duty, and thus the lower court improperly dismissed his claim. Moreover, the Ninth Circuit also concluded that Mr. McIver plausibly alleged in his complaint that Boeing and the committee breached their fiduciary duties by failing to investigate his ex-wife’s continued eligibility for dependent life insurance coverage after he submitted the QDRO to them. Thus, the Ninth Circuit held that these allegations relating to fiduciary breach were sufficient to defeat the motion to dismiss, and reversed and remanded. The court next addressed MetLife’s role in the affair, and concluded that the complaint failed to plausibly allege that it had any fiduciary duty to monitor the eligibility of Boeing’s employees or their dependents for coverage. Mr. McIver also failed to “allege that MetLife had notice or knowledge of his divorce when it continued to accept premiums from Boeing before it correctly denied his benefit claim.” The court of appeals therefore affirmed the court’s dismissal of the fiduciary breach claim against MetLife. It also affirmed the dismissal of the benefit claim against MetLife. There, the court held that the policy’s incontestability clause only applied to statements regarding insurability “made at the time of a new application or enrollment,” and not to statements regarding a change in marital status or any eligibility determinations related to that change. The Ninth Circuit thus reversed and remanded in part, and affirmed in part.
Rosenbaum v. Bank of Am., No. CV-22-02072-PHX-JAT, 2024 WL 4165408 (D. Ariz. Sep. 12, 2024) (Judge James A. Teliborg). Plaintiff Levi Rosenbaum filed this action against his former employer, Bank of America, and the administrator of the company’s short-term disability benefit plan, Sedgwick Claims Management Services, Inc. In broad strokes, Mr. Rosenbaum alleges that he was wrongfully terminated, discriminated against based on age, gender, disability, and religion, retaliated against, that Bank of America has unfair hiring and promotional practices, and that he was wrongly denied disability benefits. In all, Mr. Rosenbaum asserted twelve causes of action in the operative third amended complaint. In this decision, the court dismissed all twelve with prejudice. Claims were dismissed for a variety of reasons, including failure to exhaust administrative remedies, untimeliness, failure to state cognizable legal claims, and ERISA preemption. With regard to the disability benefit claims, the court concluded that the short-term disability benefit plan is a payroll practice, not governed by ERISA, while the long-term disability plan is governed by ERISA. Because of this, the court dismissed the ERISA claims relating to the short-term disability plan. It also dismissed the state contract law causes of action pertaining to the short-term disability plan because it concluded that the contract at issue was between Bank of America and Sedgwick, meaning Mr. Rosenbaum is not a party to the contract. As for the ERISA claims relating to the long-term disability benefits, the court held that they were not ripe for legal adjudication because Mr. Rosenbaum did not avail himself of the plan’s internal review procedures before he filed his lawsuit. Accordingly, defendants’ motion to dismiss was granted, and the whole of Mr. Rosenbaum’s complaint was thrown out. Mr. Rosenbaum was not granted leave to amend because amendment “would be futile.”
D.C. Circuit
Whetstone v. Howard Univ., No. 23-2409 (LLA), 2024 WL 4164692 (D.D.C. Sep. 12, 2024) (Judge Loren L. Alikhan). Plaintiff Stephen G. Whetstone, a former professor at Howard University, commenced this action on behalf of himself and similarly situated pension plan participants against the university, its retirement plan committee, and individual committee members, alleging that the fiduciaries of the plan are in violation of ERISA by utilizing antiquated actuarial assumptions to calculate participants’ monthly pension benefits. Mr. Whetstone asserts three causes of action. In count one, he alleges that defendants are in violation of the joint and survivor annuity actuarial equivalence requirement under ERISA Section 205(d). In count two, Mr. Whetstone maintains that defendants are violating the definitely determinable rules required under ERISA Section 402(b)(4). Finally, in count three, Mr. Whetstone raises a claim for breach of fiduciary duty under ERISA Section 404(a)(1). Defendants moved to dismiss the action, raising several objections to Mr. Whetstone’s complaint. They argued that he lacks standing, that his claims are time-barred, and that he failed to exhaust administrative remedies before suing. In addition, defendants argued that Mr. Whetstone failed to state a claim for each of his three causes of action. In this decision the court concluded that: (1) Mr. Whetstone has established standing by alleging a concrete monetary harm in the form of decreased monthly benefits; (2) count two is time-barred because the alleged violation – failing to specify the actuarial conversion formula – “would have been obvious to Mr. Whetstone by the time he received his initial disbursement of the JSA benefits in September 2018, if not before”; (3) Mr. Whetstone’s remaining claims are for equitable relief under ERISA Section 502(a)(3), and thus do not require exhaustion; and (4) Mr. Whetstone has adequately stated a claim with respect to counts one and three. Accordingly, the motion to dismiss was granted in part as to count two, and otherwise denied.
Provider Claims
Third Circuit
Hudson Hosp. OPCP, LLC v. Cigna Health & Life Ins. Co.., No. 22-04964, 2024 WL 4164181 (D.N.J. Sep. 12, 2024) (Judge Jamal K. Semper). Three affiliated New Jersey-based hospitals sued Cigna seeking reimbursement of over $100 million in underpaid healthcare claims resulting from what they allege to be an intentional and systematic practice by Cigna to underpay out-of-network providers. On October 3, 2023, the court granted defendants’ motion to dismiss the complaint for failure to state a claim. The action was dismissed without prejudice and plaintiffs amended their six causes of action. Plaintiffs assert claims for wrongful denial of benefits under ERISA Section 502(a)(1)(B), breach of the fiduciary duties of loyalty and due care under ERISA Section 502(a)(3), breach of contract, breach of the duty of good faith and fair dealing, quantum meruit, and violation of New Jersey’s Health Claims Authorization, Processing, and Payment Act. Defendants again moved to dismiss the complaint. The court once again granted their motion, this time with prejudice. As before, the court concluded that plaintiffs could not sustain their ERISA benefits claim because they continue to fail to identify any specific plan language that entitles them to the underpaid benefits. The court ruled that plaintiffs’ substantive allegations were entirely unchanged and any new allegations about “normal charges” is simply “unavailing and amounts to a distinction without a difference.” Thus, the court concluded that plaintiffs failed to plausibly allege that Cigna was required to pay the identified amounts under the ERISA plans. Turning to the fiduciary breach claim under ERISA, the court explained that because plaintiffs failed to allege that defendants were required to reimburse them at higher rates, “the fiduciary duty claims cannot succeed,” as they are premised on the same idea. Finally, the court dismissed the hospitals’ four state law causes of action, as it declined to exercise supplemental jurisdiction over them.
Samra Plastic & Reconstructive Surgery v. Aetna Life Ins. Co., No. 23-23424 (MAS) (DEA), 2024 WL 4136549 (D.N.J. Sep. 10, 2024) (Judge Michael A. Shipp). Plaintiff Samra Plastic & Reconstructive Surgery (“Samra”) sued Aetna Life Insurance Company after the insurance company reimbursed the provider only $9,462.06 for post-mastectomy reconstructive breast surgery. Samra maintains that the surgery cost $150,000, and it seeks the difference in the billed and paid amounts in this lawsuit. In its action, Samra asserted causes of action on its own behalf against Aetna under state law and on behalf of its patient for violations of ERISA. Aetna moved to dismiss the complaint for failure to state a claim. It argued that the plan contains a valid and unambiguous anti-assignment provision meaning Samra does not have standing to sue on its patient’s behalf. The court agreed. Moreover, the court stated that Samra could not work around this problem by asserting that it was acting as a designated authorized representative of the patient. The court stated that Samra’s power of attorney argument “fails both procedurally and as a matter of substantive law.” Not only was the power of attorney appointment conferred in the same document as the assignment of benefits and through the exact same contractual language, but under New Jersey state law only individuals or banks can be appointed as attorneys in fact. Accordingly, the court stated, “this route is not available to health care practices like Plaintiff in this District.” Therefore, the court agreed with Aetna that Samra does not have standing to bring an ERISA claim through either an assignment of benefits or limited power of attorney appointment. Thus, the court granted Aetna’s motion to dismiss. The court dismissed the ERISA claims with prejudice and the state law claims without prejudice.
Standard of Review
Fourth Circuit
Fuller v. Sun Life Assurance Co. of Can., No. 1:23cv1241 (DJN), 2024 WL 4120787 (E.D. Va. Sep. 6, 2024) (Judge David J. Novak). Plaintiff Thomas Fuller worked as a foreman at a Connecticut-based construction company until an injury at his home in May of 2020 upended his life and his ability to work. On May 5, 2020, Mr. Fuller slipped on the wet floor of his kitchen and fell onto his spine. “His lumbar spine absorbed the shock of the impact,” and Mr. Fuller was diagnosed with collapsed vertebra, lumbar radiculopathy, and complex regional pain syndrome. Mr. Fuller underwent many forms of treatment, but his pain persisted. In this action, Mr. Fuller challenged Sun Life Assurance Company of Canada’s termination of his long-term disability benefits after his benefit eligibility transitioned from the laxer “own occupation” standard to the “any occupation” standard. The parties each moved for judgment in their favor. Both parties filed competing motions for judgment, but Mr. Fuller requested judgment on the administrative record under Federal Rule of Civil Procedure 52, while Sun Life moved for summary judgment under Rule 56. As an initial matter, the court settled on a Rule 52 bench trial, as Sun Life consented and because the Fourth Circuit “has long expressed ‘reservations’ regarding the use of ‘the summary judgment standard in the ERISA context.” At this point, one would expect the court to jump into weighing the evidence of disability, but instead buried in the middle of the court’s adjudication was a nuanced discussion on the applicability of a state law’s ban on discretionary clauses. The parties agreed that the plan contains language that unambiguously grants abuse of discretion review. However, matters were complicated by the policy’s choice of law clause subjecting it to Connecticut law. Connecticut is among the 26 states and the District of Columbia that have enacted some form of prohibition on discretionary clauses. Connecticut’s law applies to disability plans that were delivered, issued, renewed, amended, or continued after the law went into effect on January 1, 2020. Mr. Fuller argued, and the court agreed, that his policy was continued after January 1, 2020 and therefore fell within the statute’s scope. In addition to ruling that the law applies to the policy, the court also explained why “the statute may permissibly do so consistent with the Contract Clause,” and that the facially unambiguous language of the law, coupled with the statutory history and purpose, “compels de novo review of Sun Life’s benefits determination.” The court explained in clear and worker-friendly language many of the problems that arise from discretionary clauses. For one, the court highlighted that “the very heart of ERISA” is “ensuring that employees receive the benefits they have earned.” Yet, the court stated that discretionary clauses come into conflict with this basic idea. The court quoted from a Seventh Circuit decision, Herzberger v. Standard Ins. Co., 205 F.3d 327 (7th Cir. 2000), to convey that the “very existence of ‘rights’ under ERISA depends on the degree of discretion lodged in the administrator. The broader the discretion, the less solid an entitlement the employee has.” Not only did the court view Connecticut’s law as advancing the state’s “legitimate purpose,” but it also conveyed that it viewed the law as simply placing ERISA administrators, including Sun Life, on equal footing “with every other contracting party in the state. Whereas the contra proferentem canon would require a court to construe ambiguous terms against the drafter, discretionary clauses flip the script and require judicial deference to the drafter’s interpretations of its own terms. And while standard form insurance contracts are the quintessential contract of adhesion – which would ‘sometimes allow policyholders to obtain coverage despite their failure to comply strictly with the terms of their policy’ – discretionary clauses often deny coverage even when a court’s independent judgment would lead it to find that a beneficiary stands entitled to benefits.” As a result, the court was not receptive to Sun Life’s argument that it was unreasonably subject to the law, especially as any damage could have been easily remedied by simply adopting the laws of a more favorable jurisdiction. Because the policy chose Connecticut’s laws, the court applied them, and determined that the appropriate standard of review here was de novo. Unfortunately for Mr. Fuller, this more favorable standard of review did not assist him. The court disagreed with Mr. Fuller’s claim that Sun Life denied him a full and fair review, that it ignored favorable evidence that supported his claim, and that its vocational reports were deficient. The court found that Sun Life had committed no procedural errors when handling Mr. Fuller’s claim as it was transparent about the criteria it employed and gave him every opportunity to perfect his claim through the production of favorable evidence. The court further agreed with Sun Life that there was very little in the way of “affirmative evidence that he cannot perform a full-time sedentary job.” Mr. Fuller only provided three pieces of supporting evidence: (1) a statement from his treating provider; (2) a functional capacity exam conducted after the termination; and (3) an award of Social Security Disability Insurance (“SSDI”) benefits, which also happened after the termination. The court ultimately held that the statement from the treating provider and the SSDI determination in fact supported the conclusion that Mr. Fuller could work certain full-time sedentary jobs, and that the functional capacity exam “standing alone, cannot refute the five physicians who reviewed Fuller’s file and reached the same conclusion.” Taken together, the court could not say that substantial evidence supported Mr. Fuller’s disability, and it therefore affirmed Sun Life’s termination decision. Judgment was accordingly entered in favor of Sun Life and against Mr. Fuller. Finally, the court declined to award either party attorney’s fees under ERISA Section 502(g).