It seems the courts had summer holiday plans this week, and as a result no decision stood out to us as particularly notable. There were, however, several cases worthy of a light beach read, including one involving an ex-wife seeking to garnish her ex-husband’s 401(k) plan account based on a defamation judgment against him, a titillating discussion of modifying clauses in a severance benefit action (“Syntacticians, grab your popcorn”), and the tale of a court significantly reducing an already piddly statutory benefit award down to peanuts. We hope you enjoy these summaries, and all the rest, along with any Juneteenth and summer solstice celebrations.

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

Breach of Fiduciary Duty

Seventh Circuit

Russell v. Illinois Tool Works, Inc., No. 22 C 2492, 2024 WL 2892837 (N.D. Ill. Jun. 10, 2024) (Judge Sunil R. Harjani). Retirement plan participants brought this action alleging Illinois Tool Works, Inc., its board of directors, and the employee benefits investment committee breached their duties of prudence and monitoring by mismanaging the plan, investing in chronically underperforming target date funds, and paying excessive costs for standard recordkeeping services. Defendants moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and (6). Defendants argued that one of the named plaintiffs’ claims should be dismissed for lack of subject-matter jurisdiction due to a release in his employment separation agreement. In addition, they challenged the sufficiency of the pleading of what they characterized as “Plaintiff’s generic recordkeeping, generic investment, and derivative monitoring claims.” The court rejected all of defendants’ arguments. First, the court elucidated, “[a] release is not a challenge to subject-matter jurisdiction, but instead an affirmative defense.” It expanded upon this by saying that analyzing whether the release covers the asserted claims, whether it is valid, and whether the plaintiff knowingly and voluntarily entered into it are all factual determinations not properly resolved on a motion to dismiss. Next, the court probed the sufficiency of plaintiffs’ claims. Broadly, it found that plaintiffs’ fee and fund allegations align closely with those alleged in Hughes v. Northwestern University, which were blessed by the Seventh Circuit. As in Hughes, the court found the complaint alleged “enough facts to show that a prudent alternative action was plausibly available.” Thus, the court was satisfied that plaintiffs did enough to lay out plausible imprudence claims. Finally, the derivative duty to monitor claim, which was predicated on the breach of fiduciary duty of prudence claim, also survived the motion to dismiss.

Class Actions

Eleventh Circuit

Goodman v. Columbus Reg’l Healthcare Sys., No. 4:21-cv-00015-CDL, 2024 WL 2963441 (M.D. Ga. Jun. 12, 2024) (Judge Clay D. Land). Participants of the Columbus Regional Healthcare System Retirement Savings Plan brought this class action alleging that the plan’s fiduciaries breached their fiduciary duties and engaged in prohibited transactions by failing to control and properly monitor the plan’s investment options, investment costs, and administrative expenses. For the past two-and-a-half years, this case has been “vigorously litigated.” Plaintiffs survived two motions to dismiss, the parties engaged in extensive discovery, the class was certified by the court, and the experts produced and exchanged their reports. All of this effort led to a mediation “conducted by an experienced trial lawyer and mediator,” which resulted in agreed terms to settle the action for $2 million. The court previously issued an order preliminarily approving the parties’ proposed settlement. Notices were then distributed to the 6,789 class members, and a fairness hearing was held. Pending before the court here were the parties’ joint motion for final approval of the settlement, and plaintiffs’ unopposed motion for attorneys’ fees, costs, and class representative service awards. In this order, the court granted final approval to the settlement, and awarded plaintiffs their requested fee award of one-third of the fund, as well as $175,315.29 in costs. However, the court denied the motion for service awards to the class representatives pursuant to binding precedent from the Eleventh Circuit prohibiting incentive awards to compensate class representatives for their time and effort bringing a lawsuit. With regard to the settlement itself, the court found that each core concern of Rule 23(e)(2) was satisfied. It determined that the $2 million fund was adequate, fair, and reasonable, and the result of informed good faith and arms-length negotiations. The court noted the work done to date on this complex ERISA matter, the uncertainty of the results ahead should the proposed settlement not go through, and found the pro rata distribution to the class members equitable, efficient, and rational. Further, the court accepted the $55,000 in settlement administration fees and the creation of a charitable fund for any unclaimed settlement funds “provided the unclaimed funds do not exceed $75,000.” Finally, the court was satisfied that attorneys’ fees totaling $666,666.66 (one-third of the gross settlement amount) were appropriate and in line with comparable awards in similar cases, especially given the more than two thousand hours class counsel spent on this complex ERISA class action, the attorneys’ specialized skills and expertise, and the fact that they accepted the case on a contingency. For these reasons, the court granted final approval to the settlement and awarded the attorneys their requested fees and costs.

Disability Benefit Claims

First Circuit

Demeritt v. Unum Life Ins. Co. of Am., No. 23-cv-00035-JL, 2024 WL 2990553 (D.N.H. Jun. 7, 2024) (Judge Joseph N. Laplante). Plaintiff Jay Demeritt commenced this action to challenge Unum Life Insurance Company’s denial of his claim for long-term disability benefits. Unum determined that Mr. Demeritt did not qualify for benefits after its reviewing neurologist concluded that his “self-report of narcolepsy was not consistent with the medical evidence.” The parties filed cross-motions for judgment on the administrative record. As an initial matter, the parties disagreed about the appropriate standard of review. The court declined to rule on which position was correct, as it determined that even under the more plaintiff-friendly de novo standard the record does not support that Mr. Demeritt satisfied the policy’s definition of disability to prove he was unable to perform his sedentary profession. Importantly, the court disagreed with Mr. Demeritt that his job as a systems administrator/network engineer in the national economy requires either driving or climbing ladders and lifts, and thus concluded that these were therefore not material and substantial duties of his work. Further, the court noted that Mr. Demeritt was first diagnosed with narcolepsy in 1999 and that he has been taking the same medication on the same dose as early as 2018, all while employed and performing the same job. In addition, the court agreed with Unum’ reviewing neurologist that it was significant that Mr. Demeritt’s medical record lacked “formal mental status testing, as might be seen when cognitive complaints are a significant clinical concern.” The court was thus persuaded that Mr. Demeritt’s symptoms did not warrant the work restrictions recommended by his treating doctors. Therefore, the court concluded Mr. Demeritt did not establish his entitlement to long-term disability benefits by a preponderance of the evidence. For these reasons, the court entered judgment in favor of Unum and affirmed its denial of benefits.

Ninth Circuit

Drake v. Lincoln Nat’l Corp., No. CV-22-08230-PCT-SPL, 2024 WL 2942695 (D. Ariz. Jun. 10, 2024) (Judge Steven P. Logan). Plaintiff Susan Drake stopped working and went on long-term disability benefits in the summer of 2020 due to a foot injury. Lincoln National Corporation, the administrator of Ms. Drake’s long-term disability policy, approved her claim for benefits and began issuing her payments. She then underwent foot surgery to treat the injury. Following the procedure, her surgeon concluded that the torn tendons had healed, and that Ms. Drake had recovered well and could return to work. At the same time, the surgeon noted that Ms. Drake had an underlying foot deformity which had likely caused the injury in the first place, and opined that the deformity may cause her continued pain and disability. Although the surgeon discussed additional surgery to correct the foot deformity, Ms. Drake declined to proceed with the reconstructive surgery at that time. Based on the treating doctor’s statements that the surgery was successful and Ms. Drake could resume work, Lincoln terminated her disability benefits. Ms. Drake initiated this action seeking a court review of Lincoln’s decision. In this ruling, the court reviewed the denial and upheld it under deferential review of the administrative record. The court commented on Lincoln’s structural conflict of interest and on certain procedural errors, including its failure to provide Ms. Drake with the correct phone number and its failure to wait for a response from her surgeon. However, the court only applied “a moderate amount of additional skepticism required by Defendants’ structural conflict of interest,” and expressed that it did not view the procedural violations to be wholesale, flagrant, or egregious. As for the denial itself, the court concluded that the medical record reflected improvement, given Ms. Drake’s post-surgery visit and the opinions of her surgeon that she had healed and was ready to resume working. Although the treating surgeon later clarified that he believed Ms. Drake remained disabled due to her foot deformity, the court nevertheless agreed with Lincoln that the doctor’s change in opinion without any support in the medical records or further visits did not require a finding of ongoing disability. Accordingly, the court found Lincoln’s denial reasonable and supported by substantial evidence. The court therefore affirmed Lincoln’s determination. Finally, the court addressed Ms. Drake’s statutory penalties claim for failure to provide a copy of her claim file. The court concluded that a claim file is not considered a plan document for the purposes of the relevant statute and therefore rejected Ms. Drake’s request for statutory damages.

ERISA Preemption

Third Circuit

Burns v. Cooper, No. 23-5090, 2024 WL 2980220 (E.D. Pa. Jun. 13, 2024) (Judge Juan R. Sanchez). In 2019, plaintiff Jamiylah Burns obtained a $75,000 judgment in Pennsylvania state court against her ex-husband, defendant Blakely Cooper, in a defamation action. Mr. Cooper has not paid anything on the judgment, and has claimed he is unable to do so. Mr. Cooper is a participant in the Pfizer Inc. 401(k) plan, so Ms. Burns brought this garnishment action to collect money held in the plan belonging to Mr. Cooper. Pfizer moved to dismiss the action for failure to state a claim upon which relief can be granted. The company argued that the funds are exempt from garnishment and execution under ERISA’s anti-alienation provision, Section 206(d)(1). The court agreed and granted the motion. While the court acknowledged that there are limited exceptions to the anti-alienation provision, it wrote, “the Supreme Court has made clear that approval of any generalized equitable exceptions to the anti-alienation provision are not appropriate.” Ms. Burns argued that Mr. Cooper’s 401(k) contributions were part of a fraudulent scheme to hinder payment to her, his creditor, and therefore a violation of Pennsylvania’s Uniform Voidable Transactions Act. The court however, stated that the Act defines “transfer” as modes of disposing or parting with assets or an interest in assets, and even assuming for argument’s sake the Act is not preempted by ERISA, Ms. Burns misunderstands the Act because Mr. Cooper is not parting or disposing of any assets, but rather transferring his own money from one place to another. Accordingly, the court concluded that Ms. Burns could not state a claim. “Nor does Burns qualify for relief under the Pennsylvania state provision governing exemptions of property of a judgment debtor from garnishment and attachment,” because, “in addition to the protection against garnishment and execution provided under ERISA, Cooper’s Pfizer 401(k) account is similarly exempt under § 8124 of Pennsylvania’s Title 42.” Based on the foregoing, the court agreed with Pfizer that Ms. Burns could not sustain any of her claims, and therefore granted its motion to dismiss. Finally, the court permitted Pfizer to file a motion for attorneys’ fees under ERISA Section 502(g)(1) and granted it leave to do so.

Sixth Circuit

Roberts v. Life Ins. Co. of N. Am., No. 24-27-DLB-CJS, 2024 WL 2980780 (E.D. Ky. Jun. 13, 2024) (Judge David L. Bunning). Plaintiff Patricia Roberts purchased life insurance policies for herself and her husband through her employer, Madonna Manor. The policies were insured by Life Insurance Company of North America (LINA). Ms. Roberts’ husband died in 2022, after which LINA paid only a fraction of the amount of benefits that Ms. Roberts thought she should receive. Ms. Roberts filed an action in Kentucky state court (Roberts I) alleging that LINA, Madonna Manor, and its parent company, CHI Living Communities, violated Kentucky state law. Defendants removed that action to federal court asserting ERISA preemption and federal question jurisdiction. Ms. Roberts argued that the plan is a church plan, exempted from ERISA. The presiding judge disagreed, found that the plan is governed by ERISA, and that the state law claims were preempted. However, because Ms. Roberts did not include ERISA claims in her original complaint, the court dismissed the action without prejudice, should she wish to amend her complaint to plead claims under ERISA. Instead, Ms. Roberts filed the instant action, again in state court. Defendants removed the action to federal court. Now they move to dismiss the state law claims and to strike Ms. Roberts’ jury trial demand. Both motions were granted in this order. First, the court agreed with defendants that the issue of whether the policy qualified for ERISA’s church plan exemption was already decided and re-litigation is barred under the doctrine of issue preclusion. It stressed that the court in Roberts I reached the merits of the issue of ERISA preemption in its order on the motions to dismiss and that the dismissal of the state law claims in Roberts I “constituted a final judgment on the issue of whether the church plan exemption applies to Plaintiff’s claims,” adding, “[t]his is a legal question, and no further amendments to the complaint would change this outcome.” Accordingly, the court reaffirmed the Roberts I rulings and dismissed the state law claims as preempted by ERISA. Thus, Ms. Roberts may proceed only on her ERISA causes of action. The decision ended with the court quickly granting the motion to strike the demand for a jury trial as Sixth Circuit precedent forecloses jury trials in ERISA benefit cases.

Ninth Circuit

Emsurgcare v. United Healthcare Ins. Co., No. 2:24-cv-03654-SB-E, 2024 WL 2892319 (C.D. Cal. Jun. 7, 2024) (Judge Stanley Blumenfeld, Jr.). Two emergency healthcare providers, plaintiffs Emsurgcare and Emergency Surgical Assistant (ESA), provided emergency healthcare in June of 2020 to a patient insured by defendant United Healthcare Insurance Company. Emsurgcare billed $60,000 for its services, and ESA billed $59,000 for the medical services it provided. United paid less than $1,700 on Emsurgcare’s claim, and nothing at all on ESA’s claim. The providers have been challenging United’s reimbursement determination ever since. In an earlier case, the two providers, along with the insured patient, filed a complaint in state court against the insured’s employer alleging claims for failure to pay benefits under ERISA and for quantum meruit. The employer removed that case to federal court. After removal, plaintiffs amended their complaint bringing the same two claims against United rather than the employer. The court then dismissed the amended complaint and gave plaintiffs another opportunity to amend. Rather than amend their complaint, plaintiffs voluntarily dismissed their claims without prejudice and then filed this new action in state court, without the patient, alleging only the state law quantum meruit claims against United. The new action was removed to federal court by United, which invoked both diversity and federal-question jurisdiction. The providers then moved to remand, and United moved to dismiss. In this decision the court granted plaintiffs’ motion to remand, concluding United failed to meet its heavy burden to show that the court has jurisdiction. First, the court concluded that it lacked diversity jurisdiction because the amount of damages for each plaintiff is less than $75,000. The court declined to aggregate the amounts of plaintiffs’ claims, stating that although they are closely related, they are distinct and independent of one another. Second, the court determined that the quantum meruit claims are not completely preempted, finding the second prong of the Davila preemption test dispositive. The court held that plaintiffs’ claims “unambiguously assert an entitlement to recovery that is based on an independent legal duty – namely, the obligation imposed by California’s Knox-Keene Act on ‘health care service plans’…to reimburse medical providers for the reasonable costs of emergency medical services.” This was true, the court held, notwithstanding the fact that plaintiffs could have also asserted their assigned ERISA rights. Thus, the court agreed with the providers that their complaint invokes a right to recovery based on an independent legal duty, meaning their quantum meruit claims are not completely preempted by ERISA. Accordingly, the court granted their motion to remand.

Exhaustion of Administrative Remedies

Second Circuit

Murphy Med. Assocs. v. 1199SEIU Nat’l Benefit Fund, No. 23 Civ. 6237 (DEH), 2024 WL 2978306 (S.D.N.Y. Jun. 12, 2024) (Judge Dale E. Ho). Plaintiffs Murphy Medical Associates, LLC, Diagnostic and Medical Specialists of Greenwich, LLC, and Steven A.R. Murphy initiated this action against the 1199SEIU National Benefit Fund seeking payment for COVID-19 testing. Originally filed in the District of Connecticut, this action was transferred to the Southern District of New York by virtue of the plan’s forum selection provision. After successfully obtaining a transfer, the benefit fund moved to dismiss the action, arguing among other things that the providers failed to exhaust administrative remedies before filing suit. The fund’s motion was granted by the court, without prejudice. Plaintiffs subsequently amended their complaint, and defendant once again moved for dismissal. In this decision the court granted the motion to dismiss, and this time dismissed plaintiffs’ action without leave to amend. The court agreed with the fund that plaintiffs failed to plausibly allege that they followed the plan’s procedures to exhaust administrative remedies prior to filing suit. While the court recognized that the failure to exhaust is an affirmative defense, it nevertheless found it clear, both from the face of the complaint and from plaintiffs’ arguments in response to defendants’ motion, that plaintiffs simply did not do so. Moreover, the court concluded that plaintiffs failed to make a clear and positive showing that exhaustion would be futile, particularly in light of the fact that many of their claims were in fact approved and reimbursed by the Fund. Given these circumstances, the court held that plaintiffs’ failure to follow the plan’s administrative appeals process prior to commencing civil litigation warrants dismissal. Finally, the court declined to permit the providers to amend their pleadings a second time, as it felt they failed to cure the original complaint’s deficiencies and because the providers “decline to explain how they intend to cure any deficiencies with their pleadings.” Therefore, the court did not see any value in permitting further opportunities to amend and concluded that doing so “is unlikely to be productive.” Accordingly, the case was dismissed with prejudice.

Medical Benefit Claims

Ninth Circuit

Oneto v. Watson, No. 22-cv-05206-AMO, 2024 WL 2925310 (N.D. Cal. Jun. 10, 2024) (Judge Araceli Martinez-Olguin). Plaintiff Roy J. Oneto is a former employee of a winery in Napa, California. While employed at the winery Mr. Oneto was a participant in his employer’s self-funded health benefit plan. Mr. Oneto was reliant on his health insurance to pay for two surgeries he needed to treat an esophageal medical condition called Zenker’s diverticulum. Defendant Cigna Health and Life Insurance Company administered the medical benefits for the welfare plan. Cigna covered the cost of Mr. Oneto’s first surgery. But when Mr. Oneto required a second surgery to treat the pouch remaining in his throat he encountered issues. Cigna declined the surgeon’s preauthorization request, concluding that the surgical procedure was not medically necessary and was experimental/investigational. Because medical coverage for the surgery was not approved prior to the date it was scheduled, Mr. Oneto had to cancel his procedure. Shortly thereafter, his employment at the winery ended. Eight months later, Oneto eventually underwent the revision surgery, with coverage for the procedure provided under a plan established by his new employer. In this action, Mr. Oneto brings claims arising from the denial of the surgery against Cigna, its affiliated management services company, Cigna Health Management, Inc., and the medical director for Cigna, Dr. Melvin Watson. In the operative complaint, Mr. Oneto includes ERISA claims for breach of fiduciary duties and failure to discharge duties under the plan, and state law claims for non-fiduciary violations under California insurance laws, as well as a state law medical negligence claim against Dr. Watson. Defendants moved to dismiss all the non-ERISA claims pursuant to Federal Rule of Civil Procedure 12(b)(6). Their motion was granted in this decision. The court first discussed the medical negligence claim. Mr. Oneto alleged that Dr. Watson negligently determined that his surgery was experimental and not medically necessary, which directly led to the determination that the surgery was not covered under the plan. Defendants argued that these allegations are completely preempted by ERISA. The court agreed. First, it found that Mr. Oneto could have brought a claim seeking benefits under the plan under ERISA Section 502(a)(1)(B) to challenge the denial. Second, the court determined that the medical negligence claim flowed directly from the plan as “Dr. Watson was a Cigna employee and was acting in that capacity when he asked to evaluate Cigna’s coverage position with respect to Oneto’s surgery.” Accordingly, the court disagreed with Mr. Oneto that his medical negligence claim arose independently of ERISA or the terms of his benefit plan, and therefore found that Mr. Oneto’s medical negligence claim satisfies both prongs of the Davila preemption test. The court then evaluated Mr. Oneto’s claims alleging non-fiduciary violations of California’s Health and Safety Code. It found that defendants are not subject to the sections of the Health and Safety Code that Mr. Oneto cites as the Cigna defendants are neither health maintenance organizations nor managed care organizations. The court noted that the plan is fully self-funded by the employer, and Cigna’s role in the plan is to administer the benefits. Accordingly, the court agreed with defendants that Mr. Oneto could not sustain his claims for violations of obligations arising under the Health and Safety Code because that code does not apply to them. Based on the foregoing, the court granted defendants’ motion to dismiss the non-ERISA causes of action.

Pleading Issues & Procedure

Third Circuit

Kayal v. Cigna Health & Life Ins. Co., No. 23-03808, 2024 WL 2954283 (D.N.J. Jun. 12, 2024) (Judge Jamel K. Semper). On June 28, 2022, patient John D. underwent surgery at Hudson Regional Hospital. The surgery was performed by one of Kayal Medical Group, LLC’s surgeons. At the time of the surgery John D. was insured through his employer, PMI Global Services, Inc., which sponsored a group healthcare plan administered by Cigna Health and Life Insurance Company. Kayal Medical Group billed Cigna $140,600 for the cost of the procedure, but Cigna reimbursed only $1,759.17. The provider appealed the reimbursement decision and then eventually initiated this action in state court. Cigna removed the case to federal court, and the provider filed an amended complaint as attorney-in-fact for John D. to recover the unpaid benefits under ERISA. Cigna moved to dismiss. It was undisputed that the plan contains an unambiguous anti-assignment provision foreclosing derivative standing. Nevertheless, plaintiff Robert Kayal contended that he has standing because John D. executed a valid power of attorney. However, the court ruled that Mr. Kayal’s standing argument failed because he did not provide evidence that the power of attorney was sufficient to confer standing, as the complaint “does not provide further details regarding the document, its execution, or relevant witnesses.” The court was further concerned that the individual who notarized the power of attorney was acting as both officer and witness. Finally, to the extent that the power of attorney purports to appoint Mr. Kayal the individual and Kayal Orthopedic Center as attorneys-in-fact, the court held that medical practices are not permitted to act as attorneys-in-fact as they are neither individuals nor qualified banks. Therefore, the court granted the motion to dismiss, but did so without prejudice.

Ninth Circuit

Duarte v. Russell Inv. Tr. Co., No. 2:21-cv-00961-CDS-BNW, 2024 WL 2957039 (D. Nev. Jun. 12, 2024) (Magistrate Judge Brenda Weksler). This is a breach of fiduciary duty class action challenging the investment strategies of a retirement plan. Before the court was plaintiffs’ motion for leave to file an amended complaint to reassert a previously dismissed co-fiduciary claim and to add two more plan participants as plaintiffs. The assigned magistrate judge recommended the motion be granted with respect to the addition of the two plaintiffs, but denied as to the co-fiduciary claim. The magistrate judge explained that the co-fiduciary claim was dismissed with prejudice and stated, “the Court plainly stated that under the statute, the ‘Caesars Defendant cannot be held liable for breaches of co-fiduciary duty.’” Accordingly, the magistrate concluded that the proper mechanism for seeking leave to amend the co-fiduciary claim is through a motion for reconsideration. The magistrate thus recommended denying the motion insofar as it sought to reinstate the co-fiduciary claim. However, the court saw no major prejudice to defendants in allowing plaintiffs to add two more plan members to their rank, given that their amendment was sought within the discovery period. The magistrate stated that adding the new plaintiffs would not burden defendants beyond requiring them to depose the two individuals. Thus, the magistrate recommended granting plaintiffs’ request to add the new plaintiffs.

Robertson v. Argent Tr. Co., No. CV-21-01711-PHX-DWL, 2024 WL 2977663 (D. Ariz. Jun. 13, 2024) (Judge Dominic W. Lanza). This putative class action alleges that Argent Trust Company violated ERISA in its administration of an employee stock ownership plan. In a previous order, the court granted defendants’ motion to compel arbitration and stayed the action during arbitration proceedings. Since then, the parties have provided the court with regular status reports and arbitration proceedings have commenced. Through the course of these proceedings, plaintiff Shana Robertson claims she has discovered the existence of eight additional defendants that she now wishes to sue. Her claims are governed by ERISA’s statute of repose, “must be asserted by June 14, 2024 or they will be time-barred,” and “although her initial plan was to wait until the conclusion of the arbitration proceedings to amend her complaint, unexpected delays in the arbitration process…have rendered that plan untenable, such that she must seek relief from the stay now.” Accordingly, two motions were before the court. Ms. Robertson moved to temporarily lift the stay and to file an amended complaint. The court granted both motions in this order. First, the court stated that other courts have granted requests to lift stays under very similar circumstances. Second, the court found that there was no bad faith or undue delay on Ms. Robertson’s part. Given these facts, the court concluded that leave to amend should be freely granted and that doing so serves the interest of justice. Finally, the court declined to engage with defendants’ futility arguments because Ms. Robertson has not yet had a chance to respond to them. Furthermore, she seeks to add new defendants, not new claims, and it is therefore “debatable whether the existing defendants even have standing to raise futility arguments in this scenario.” Accordingly, the court temporarily lifted its stay and granted Ms. Robertson’s motion for leave to file an amended complaint.

Tenth Circuit

R.L. v. Aetna Life Ins. Co., No. 2:23-cv-00494, 2024 WL 2941844 (D. Utah Jun. 11, 2024) (Magistrate Judge Daphne A. Oberg). In this action plaintiff R.L. and his son M.L. challenge Aetna Life Insurance Company’s denial of their claim for medical benefits under ERISA Section 502(a)(1)(B) and allege violations of the Mental Health Parity and Addiction Equity Act. R.L. is a participant of, and M.L. is a beneficiary of, a fully-insured group health plan administered by R.L.’s employer Justworks Employment Group LLC. Plaintiffs moved to amend their complaint to add Justworks as a defendant and to assert a new statutory penalties claim against it. Aetna opposed the motion, arguing that plaintiffs unduly delayed filing their new claim in order to increase statutory penalties. In addition, Aetna argued that the new claim is futile, and that plaintiffs failed to comply with local rules by not filing a redlined version of their proposed amended complaint. The court disagreed, and concluded that granting plaintiffs’ motion serves the interest of justice. First, the court differed with Aetna’s characterization of events. Rather than seeing plaintiffs’ delay as being motivated by bad faith, the court was receptive to plaintiffs’ argument that any delay in seeking amendment resulted from ongoing and good faith efforts to obtain all of the plan documents from Aetna and Justworks by other means. Therefore, the court held that Aetna did “not demonstrate undue delay, bad faith, or improper motive.” In addition, the court stated that it found “Aetna’s futility arguments more appropriately addressed in the context of dispositive motions.” Further, the court did not feel that Aetna would be prejudiced by amendment. On top of that, it was not clear to the court that amendment would cause any significant delay. Based on these factors, the court concluded that there was no justification to deny leave to amend. The court thus granted plaintiffs’ motion. Finally, the court stressed that the circumstances of plaintiffs’ noncompliance with the local rules did not justify deviating from its above conclusions, as plaintiffs quickly corrected their error by attaching a redlined version to their reply.

Severance Benefit Claims

Fifth Circuit

Ferris v. Blucora, Inc., No. CIVIL 4:23-CV-1018-SDJ, 2024 WL 2922401 (E.D. Tex. Jun. 10, 2024) (Judge Sean D. Jordan). Corporate shakeups are rattling for employees. Thus, companies will frequently create “change of control” severance plans in order to try to steady their workers through these types of turbulent situations. Such plans are designed to pay terminated employees severance benefits in the event of corporate changes, and incentivize them to stay with the company. In response to concerns about a potential hostile takeover, Blucora, Inc. enacted just such a plan, the Blucora, Inc. Key Leadership Change of Control Severance Plan. Plaintiff Charles W. Ferris III was the former vice president of strategy for the company. “As foreshadowed by the Plan, Blucora eventually experienced a Change of Control when it sold its tax-focused subsidiaries – TaxAct Holdings, Inc., TaxAct Admin Services LLC (‘New LLC’), and TaxSmart Research, LLC – to Franklin Cedar Bidco, LLC.” Mr. Ferris was given a new position at the new company. He alleges that this new position was not substantially comparable to his previous one with Blucora, because of what he viewed as the degradation of his role and a reduction in his compensation and benefits. Mr. Ferris claims that he is entitled to severance benefits pursuant to the plan. His claim for benefits was denied after the plan administrator disagreed that he had experienced a qualifying termination. After exhausting his administrative appeal, Mr. Ferris initiated this action pursuant to ERISA Sections 502(a)(1)(B) and (a)(3) seeking severance benefits under the plan. Defendants moved to dismiss. They argued that they did not abuse their discretion in denying the benefits and that their interpretation of the plan language was legally correct. The court agreed and granted the motion to dismiss with prejudice. “This case turns on whether the phrase ‘on terms and conditions substantially comparable’ modifies both ‘employment or reemployment’ and ‘an offer of employment.’” Ultimately, the court agreed with defendants that the qualification only applied “where an offer of employment was made – but not where employment occurred,” and “that the Plan Administrator correctly read the Plan to exclude from the definition of ‘Qualifying Termination’ instances where the Participant’s termination was ‘followed by employment…with the purchaser,’ regardless of whether the subsequent employment was ‘on terms and conditions substantially comparable’ to his or her previous employment. This reading accords with ordinary grammar usage and the canons of construction, and it is the most plausible interpretation of the provision.” Accordingly, the court dismissed the claim for wrongful denial of benefits. It likewise dismissed Mr. Ferris’ Section 502(a)(3) claim, as it found that Mr. Ferris abandoned his argument that Section 502(a)(1)(B) was inadequate to provide him relief. Therefore, the court agreed with defendants that the two claims were duplicative. Finally, the court denied Mr. Ferris leave to amend, writing that “no amendment could change the fact that the Plan Administrator correctly interpreted the Plan and that Section 502(a)(1)(B) provided an adequate remedy for Ferris’ only injury – not receiving benefits.”

Statutory Penalties

Ninth Circuit

Zavislak v. Netflix, Inc., No. 5:21-cv-01811-EJD, 2024 WL 2882564 (N.D. Cal. Jun. 7, 2024) (Judge Edward J. Davila). Plaintiff Mark Zavislak is a beneficiary of Netflix Inc.’s ERISA health benefit plan. This action arose after Netflix failed to furnish documents Mr. Zavislak requested in a satisfactory or timely fashion. Mr. Zavislak brought his case alleging Netflix violated various sections of ERISA, including, as relevant here, a claim under Section 104 for failure to produce plan documents. In his Section 104 claim, Mr. Zavislak requested penalties of $110 per day beginning on February 26, 2021, the date Netflix refused to furnish additional documents in response to his original January 2021 written request, up to the date of the court’s order. “Zavislak’s requested penalties would have been measured by approximately 1,069 days, resulting in an award of $117,590.” The case proceeded to trial. On January 31, 2024, the court issued its final decision. (Your ERISA Watch reported on this ruling in its February 7, 2024 edition.) The court ruled that Netflix was not required to furnish the additional documents related to plan administration that Mr. Zavislak requested, that when Netflix furnished the summary plan descriptions to Mr. Zavislak it furnished the most up-to-date versions, and that Netflix was indeed untimely in responding to and furnishing the requested documents within 30 days of January 4, 2021. However, the penalties awarded by the court for this violation did not come close to Mr. Zavislak’s request. The court exercised its discretion to award Mr. Zavislak $15 per day from January 4, 2021 to the date Netflix furnished the required plan documents on March 11, 2022, totaling 431 days, and an award of $6,465. The court reached this decision due in part to the exceptional circumstances of the COVID-19 pandemic. Netflix responded to the court’s order by filing a motion to amend the final order or for relief from judgment and a motion for leave to file a motion for reconsideration. The court denied Netflix’s motion for leave to file a motion for reconsideration because its findings of fact and conclusions of law were not an interlocutory order. Instead, the court considered Netflix’s motion to amend pursuant to Federal Rule of Civil Procedure 60. Netflix argued that the court erred in calculating penalties from January 4, 2021 to March 11, 2022, because the court found that Netflix supplied all documents required under ERISA on February 24, 2021. Thus, Netflix argued that if penalties are to be awarded, they should run from January 4, 2021 through February 24, 2021. The court agreed with Netflix on this identified inconsistency. “Although the crux of this case is Zavislak’s claim that the documents he received on February 24, 2021, were incomplete and out of date, the Court ultimately found that all documents furnished on February 24, 2021 were the most up to date versions in Netflix’s possession, and Netflix was not required to furnish the additional documents requested by Zavislak…In other words, the Court found that Netflix discharged its statutory duty regarding Zavislak’s January 2021 Request on February 24, 2021…While this date is still untimely…the correction of this error decreases the penalties calculations for 431 to 51 days.” Accordingly, the court amended its judgment to correct this error and recalculated damages to account for it. The new calculation of damages of $15 per day for these 51 days resulted in total damages of $765, down significantly from the court’s already modest $6,465 penalty. Netflix also advanced arguments for why it believed the award of penalties itself was erroneous, but the court rejected these arguments for various reasons. Accordingly, beyond amending the award of penalties, all other findings of fact and conclusions of law remained unchanged. One can only wonder how much time and money has been expended in the three years this case has been pending, all for $765.

Carfora v. Teachers Ins. Annuity Ass’n of Am., No. 21 Civ. 8384 (KPF), 2024 WL 2815980 (S.D.N.Y. May. 31, 2024) (Judge Katherine Polk Failla)

ERISA was designed to hold plan sponsors, administrators, and other fiduciaries to high standards in order to protect workers’ retirement and welfare benefits. ERISA has proved adaptable throughout its fifty-year history. As this case illustrates, with a bit of creativity its protective scheme can be applied in a multitude of ways in order to accomplish these goals. The plaintiffs here had to be imaginative in their effort to advance past the pleading stage, and were rewarded by the court.

This lawsuit is yet another chapter in the story of the alleged years-long scheme by defendant Teachers Insurance Annuity Association of America (TIAA) to enrich itself by driving ERISA-governed plan participants away from their plans and into TIAA-sponsored proprietary offerings through a behavior known as “cross-selling.”

According to the plaintiffs, in the mid-2010s TIAA recognized it was “rapidly losing revenue from its institutional retirement plan business, as those institutional clients moved their assets from TIAA to larger competitors” such as Vanguard and Fidelity.

To compensate for this revenue loss, TIAA devised a plan. It tripled its sales force, hiring hundreds of new advisors and sales representatives, and tied their employment, compensation, and bonuses to goals related to cross-selling TIAA’s individual advisory business, called “Portfolio Advisor.” Investors in Portfolio Advisor are required to pay various fees to TIAA in using the program.

Those fees added up. The scheme was remarkably successful and extremely lucrative for the company. In five short years TIAA’s annual revenues increased from $2.6 million in 2013 to $54 million in 2018.

Plaintiffs John Carfora, Sarah Putnam, and Juan Gonzales are university professors and researchers who are participants in benefit plans administered by TIAA. In their original class action complaint, filed in 2021, they alleged that TIAA breached its fiduciary duties under ERISA by misleading them and trying to convince them to roll their ERISA-governed assets into Portfolio Advisor.

According to plaintiffs, TIAA engaged in pernicious sales techniques. TIAA used a multi-step pitch process in which it cold-called participants to “offer free financial planning services, often describing the service as an included benefit of the plan.” In doing so, TIAA used information it had obtained through its administration of the participants’ ERISA-governed accounts. TIAA personnel allegedly held TIAA out as a “trusted” advisor, emphasized TIAA’s “non-profit heritage,” represented that they met fiduciary standards, and stated they were “objective” and “non-commissioned.”

Internally, TIAA allegedly called participants with large accounts “WHALES,” and its advisors were trained to discover “pain points” that would help them upsell the participants. In fact, plaintiffs alleged that TIAA’s training materials encouraged advisors to “Mak[e] the Client ‘Feel the Pain’” so they could “convince the client that he or she needed the high-touch services offered by Portfolio Advisor.”

Plaintiffs further alleged that TIAA instructed its advisors to engage in “hat-switching,” in which they would wear a “fiduciary hat when acting as an investment adviser representative and a non-fiduciary hat when acting as a registered broker-dealer representative.” These instructions were apparently (and understandably) confusing to both TIAA advisors and plan participants.

Plaintiffs contended that this arrangement also led to conflicts of interest, as advisors received bonuses based on asset growth and meeting sales goals, but did not receive bonuses based on keeping participants invested in their ERISA-governed plans or moving assets into self-directed IRAs.

To top it all off, plaintiffs alleged that Portfolio Advisor underperformed, thereby causing them to pay higher fees for results that were no better than if they had just stayed put in their ERISA investments.

There was only one catch: plaintiffs’ claims were based on the premise that when TIAA engaged in these alleged shenanigans it was acting in a fiduciary capacity under ERISA. In 2022, the district court rejected this premise in an order granting TIAA’s motion to dismiss. (This decision was Your ERISA Watch’s notable decision in our October 5, 2022 edition.)

In its order, the court fundamentally disagreed with the plaintiffs that TIAA was functioning as a fiduciary, either explicitly or functionally, when it solicited the rollovers: “TIAA’s pitch to plan members to roll assets out of their plans and into Portfolio Advisor necessarily did not create a fiduciary relationship.”

Plaintiffs retrenched and sought to find a workaround. They filed a motion for reconsideration in which they asked the court to reopen the case and allow them to amend their complaint to advance a new theory of liability. This theory would not be based on TIAA’s breach of fiduciary duty, but on its knowing participation in the plan sponsors’ breaches of fiduciary duties “by allowing TIAA’s affirmative and unchecked cross-selling on their watch.”

Remarkably, even though the district court noted that plaintiffs’ motion “faces numerous hurdles,” it ruled in an August 2023 order that plaintiffs cleared some of them. (We covered that ruling in our August 30, 2023 edition.) While the court refused to reconsider its decision that TIAA was not a fiduciary, it did allow plaintiffs to file an amended complaint advancing their new argument.

The operative complaint now alleges that the sponsors of plaintiffs’ benefit plans breached their fiduciary duty of prudence by failing to detect or address TIAA’s cross-selling activities. Separately, plaintiffs also aver that the sponsors should have investigated how much money TIAA was indirectly generating through its cross-selling strategy, and that they breached their duty to monitor administrative expenses and service provider compensation by not factoring in this significant source of revenue. As for TIAA, plaintiffs alleged that it, as the architect of the scheme, knowingly participated in these breaches.

Once again, TIAA moved to dismiss. It made two arguments: (1) plaintiffs could not establish that the plan sponsors breached any fiduciary duty in retaining TIAA as a service provider; and (2) plaintiffs failed to allege sufficient facts to establish that TIAA was a knowing participant in any such breach.

The court rejected the first argument, noting that “Plaintiffs have alleged a detailed account of conduct on the part of TIAA and to the detriment of plan participants that no prudent ERISA Plan Sponsor, acting solely in the interest of the participants, would have allowed to occur.” The court emphasized one plaintiff’s account of how he had been pressured by TIAA, and his allegations that “the issues associated with TIAA’s cross-selling were not specific to his case, but were in fact known across the industry as problematic practices by defined-contribution plan recordkeepers such as TIAA.”

TIAA contended that the complaint improperly focused on its conduct and was light on detail regarding the conduct of the plan sponsors, whose breaches were crucial in establishing TIAA’s liability. However, the court stated that “Plaintiffs’ theory of breach lies in the inaction of Plan Sponsors, such that this lack of detail is not necessarily fatal to Plaintiffs’ claims… Drawing all inferences in Plaintiffs’ favor, the Court finds that TIAA’s ability to engage in a multi-year campaign of cross-selling supports the implication that the Plan Sponsors failed to identify and address the problem,” which was sufficient to support the duty of prudence claim.

The court also found that plaintiffs had properly alleged that the plans breached their fiduciary duty to monitor TIAA. The court endorsed plaintiffs’ theory that “the 2,000% increase in TIAA’s cross-selling revenues over the relevant five-year period supports a reasonable inference that the Plan Sponsors failed to monitor TIAA’s fees, given that the increase far outstrips anything that TIAA would have seen in its ordinary course of business servicing ERISA plans.” Armed with this knowledge, the sponsors “should have recognized that growth in revenue and taken it into account when negotiating TIAA’s compensation as a recordkeeper.”

Instead, the plan sponsors allowed TIAA to “receive unreasonable compensation, because TIAA’s actual compensation included both its contractual fees and the increasingly large amount of indirect revenue derived from cross-selling.” In short, for the court it was “the sheer magnitude of the increase in revenue, coupled with the fact that TIAA’s cross-selling allegedly provided little benefit to the plans themselves,” that supported plaintiffs’ theory.

Indeed, the cross-selling “ostensibly burdened the plans it serviced by allegedly sowing confusion amongst plan members regarding the benefits of maintaining their assets in an ERISA plan, and ultimately incentivizing at least some plan members to roll assets out of the plan in favor of TIAA’s non-plan offering.”

The court then addressed TIAA’s second argument, which was that plaintiffs could not prove that TIAA was a knowing participant in any breach. Given the extensive allegations about TIAA’s conduct in the complaint, the court made short work of this contention: “Plaintiffs have alleged in great detail the systematic efforts on TIAA’s part to drive members from their ERISA plans and into TIAA-sponsored offerings, with little upside to those participants. Such allegations suffice to establish knowing participation for the purposes of a motion to dismiss.”

In the end, the court was satisfied that TIAA’s alleged actions, and the plan sponsors’ alleged inactions, together exposed TIAA to ERISA liability, even if it was not a fiduciary, because it had knowingly participated in breaches by the sponsors. Accordingly, the court denied TIAA’s motion in its entirety, and plaintiffs can now finally progress past the pleadings, three years after filing their original complaint.

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

Breach of Fiduciary Duty

Eighth Circuit

Dionicio v. U.S. Bancorp, No. 23-CV-0026 (PJS/DLM), 2024 WL 2830693 (D. Minn. Jun. 4, 2024) (Judge Patrick J. Schiltz). Two participants of the U.S. Bank 401(k) employee benefit plan have sued the plan’s fiduciaries on behalf of a putative class under ERISA. On March 21, 2024, the court granted in part and denied in part U.S. Bank’s motion to dismiss for failure to state a claim. (A summary of that decision can be found in Your ERISA Watch’s March 27, 2024 edition.) In response, U.S. Bank filed a motion to certify the denial-in-part for interlocutory appeal to the Eighth Circuit Court of Appeals. Its motion was denied by the court in this order. The court stressed that motions for certification must be granted sparingly and only under exceptional circumstances. It stated concisely, “U.S. Bank has not come close to meeting its ‘heavy burden.’” The court held that U.S. Bank’s challenge to its plausibility determination did not implicate a controlling question of law for the purposes of certification under 28 U.S.C. § 1292(b). Further, the court was cautious not to establish a precedent where “the denial of any motion to dismiss would create an ‘exceptional’ case warranting immediate appeal.” More to the point, the court disagreed with U.S. Bank that there were differences over or questions about the applicable legal standards for a motion to dismiss a claim alleging breach of ERISA’s fiduciary duty of prudence. To the contrary, the court stated, “the applicable standards are well-settled.” Finally, the court held that certification would not materially advance the termination of litigation, and would likely have the reverse effect, accomplishing little more than slowing progress. Thus, the court concluded U.S. Bank failed to meet its burden of establishing that circumstances warranted interlocutory appeal and therefore denied the motion for certification.

Ninth Circuit

Nagy v. CEP Am., No. 23-cv-05648-RS, 2024 WL 2808648 (N.D. Cal. May. 30, 2024) (Judge Richard Seeborg). In this putative class action two participants of the Vituity 401(k) Profit Sharing Plan have sued the plan’s fiduciaries under ERISA. Plaintiffs allege several breach of fiduciary duty and prohibited transaction claims. According to the complaint, Vituity and its retirement benefit committee selected Schwab as plan recordkeeper and chose to invest in an unreasonably low-yield Schwab savings account because the company also uses Schwab to administer its defined benefit pension plan and Schwab offered it a no-fee deal on the pension plan if it made these decisions in the 401(k) plan. In other words, plaintiffs allege that the costs of the 401(k) plan were subsidizing the pension plan for Vituity’s benefit. Plaintiffs allege the plan paid per-participant per-year fees of approximately $250 to $450 to Schwab alone. Remarkably, these were not all of the fees the plan paid. In addition, plaintiffs challenge the fees Vituity collected for itself for administrative fees, which ranged from $236 to $411 per participant per year. Plaintiffs allege that all told the plan paid more than $600 per participant in annual administrative fees to Schwab and Vituity. (Your ERISA Watch believes that these alleged fees are the highest we have ever reported on.) Defendants moved to dismiss the complaint. They challenged the standing of one of the plaintiffs, as well as the sufficiency of the claims alleged. Defendants’ motion to dismiss was granted in part, without prejudice, and denied in part. The court began its discussion with defendants’ standing challenge. Vituity argued that one of the plaintiffs lacked Article III standing to assert his claims because he signed a waiver releasing his ability to bring ERISA claims against it. The court disagreed, and relied on Ninth Circuit authority holding that a plaintiff does not release Section 502(a)(2) claims brought on behalf of the plan by signing an individual release. Accordingly, the court held that the named plaintiff had standing to bring this action. The court then switched gears to evaluating the sufficiency of each of the claims. First, the court concluded that the complaint amply alleged that defendants plausibly breached their duty of prudence by paying excessive administrative fees to Schwab. “The complaint alleges Schwab offered ‘standard services typical of other recordkeepers’ despite receiving these higher fees, and that Vituity also provided (and charged for) services to the Plan that were, in theory, not provided by Schwab, demonstrating that the scope of services Schwab offered the Plan was limited.” The court clarified that plaintiffs “need not provide even more granular, micro-level ‘apples to apples’ comparisons, based on data to which they may not yet have access, in order to survive a motion to dismiss.” Therefore, defendants’ motion to dismiss the fiduciary breach claims relating to the excessive administrative fees paid to Schwab were denied. However, the court contrasted the Schwab fee ruling with its holdings regarding plaintiffs’ fee allegations pertaining to Vituity. “In comparison with the complaint’s allegations concerning administrative services provided by Schwab, Plaintiffs are less specific in alleging what administrative services Vituity provided the Plan… Plaintiffs do not plead sufficient facts to raise a plausible inference that the fees Vituity charged were excessive – or, for that matter, that there was anything out of the ordinary in Vituity providing administrative services to the Plan.” In order to state a plausible claim, the court advised plaintiffs that they needed to supply “some non-speculative basis for determining whether such administrative services were excessive.” Thus, the court dismissed the fiduciary breach claim relating to Vituity’s fees for failure to state a claim. Next, the court analyzed the fiduciary breach claims relating to the Schwab savings account. Plaintiffs claim that choosing this investment option for the plan was imprudent because of its predictably low rate of returns. In response, defendants rationalized their investment choice by highlighting the fact that it is insured by the Federal Deposit Insurance Corporation. The court stated that “determining what constitutes a reasonable rate of interest depends on the goals of a particular investment decision. That a money market fund may offer a lower rate of return compared to say, a stable value fund does not in itself raise a plausible inference of imprudence given the different risks each type of fund poses.” Here, the court concluded that the context of the allegations does not currently support a claim that is plausible on its face. FDIC insurance, the court found, could justify an investment decision for a fund offering such low returns. Without more, it said defendants’ selection of the Schwab savings account was not obviously or even plausibly imprudent. The dismissed claims were granted with leave to replead, should plaintiffs wish to overcome these identified defects. Finally, the court scrutinized the prohibited transaction claims. It held that under Ninth Circuit precedent both prohibited transaction claims should go forward, as defendants’ justifications under the statute’s exceptions constitute affirmative defenses. ERISA plaintiffs, the court explained, need not defeat affirmative defenses in their complaint in order to state prohibited transaction claims.

ERISA Preemption

Second Circuit

Park Ave. Podiatric Care, P.L.L.C. v. Cigna Health & Life Ins. Co., No. 23-1134-cv, __ F. App’x __, 2024 WL 2813721 (2d Cir. Jun. 3, 2024) (Before Circuit Judges Lee, Merriam, and Kahn). This dispute revolves around the underpayment of foot surgeries to an out-of-network healthcare provider, plaintiff-appellant Park Avenue Podiatric Care, P.L.L.C. The provider filed its complaint against Cigna Health & Life Insurance Company seeking the difference between the $197,350 in services it billed to the insurance company (based on a promise by Cigna to pay 80% of the customary rate) and the $7,199 Cigna actually paid. The district court determined that Park Avenue Podiatric’s New York state common law claims for breach of contract, unjust enrichment, and promissory estoppel, as well as its claim for violating New York’s Prompt Pay Law, were preempted by ERISA Section 514(a). The provider appealed the dismissal of its action. The Second Circuit affirmed in this unpublished decision. It held that the district court correctly determined that the assertions in Park Avenue Podiatric’s complaint make clear that the existence of the ERISA-governed healthcare plan is “a critical factor in establishing liability” against Cigna. For instance, the appeals court wrote that the provider explains “its entitlement to reimbursement [by relying] on the plan, alleging that ‘[n]ot all plans provide out-of-network benefits, but when they do Cigna determines the amount Cigna will allow for a covered service to an out-of-network provider.’ This assertion alone implies that [appellant] understood that if [the patient’s] ERISA-governed plan provides for out-of-network benefits, the extent of Cigna’s obligations to [it] would be defined by the plan’s terms.” Accordingly, the court of appeals agreed with the lower court that Cigna’s obligation and legal duty to pay arises from the ERISA plan, rendering the state law claims expressly preempted. Finally, the Second Circuit disagreed with Park Avenue Podiatric that the district court erred by incorporating the ERISA-governed plan into its complaint by reference. “Because the plan terms and effects were relied upon in [Park Avenue Podiatric’s] complaint, and integral to its adjudication, the district court did not err in considering the submitted portions of the plan.” For these reasons, the appeals court affirmed the judgment of the district court.

Eighth Circuit

Brown v. United Healthcare Corp., No. 1:24-cv-1025, 2024 WL 2819540 (W.D. Ark. Jun. 3, 2024) (Judge Susan O. Hickey). Following the death of her son, plaintiff Janice Brown filed a claim for life insurance benefits with her son’s employer-sponsored life insurance plan under which she was the named beneficiary. Her claim for benefits was denied by defendant United Healthcare Corporation. Ms. Brown administratively appealed the adverse benefit determination and then filed suit in Arkansas state court alleging one claim for breach of contract against United Healthcare for failure to pay the life insurance benefits. United removed the action to federal court and then moved to dismiss the state law claim as preempted by ERISA. Ms. Brown did not file a response to United’s motion to dismiss. In this action the court granted United’s motion, with prejudice. It concluded that Ms. Brown’s breach of contract claim was obviously preempted by ERISA. The court concluded that the life insurance policy is unquestionably an employee benefit plan governed by ERISA. Moreover, the court found that Ms. Brown’s breach of contract claim is expressly premised on the ERISA-governed plan and United Healthcare’s allegedly improper denial of Ms. Brown’s claim for benefits under the plan. Therefore, the court held that the state law claim “plainly ‘relates to’ the administration of an ERISA plan and is preempted by ERISA.” Accordingly, the court agreed with United that Ms. Brown failed to state a claim upon which relief can be granted and dismissed the complaint pursuant to Rule 12(b)(6).

Medical Benefit Claims

Ninth Circuit

N.C. v. Cross, No. 23-35381, __ F. App’x __, 2024 WL 2862586 (9th Cir. Jun. 6, 2024) (Before Circuit Judges Miller and Bumatay, and District Judge Richard D. Bennett). Mother and son N.C. and A.C. sued Premera Blue Cross under ERISA to challenge its denial of their claim for benefits related to A.C.’s 14-month stay at a residential treatment facility. On de novo review, the district court concluded on summary judgment that A.C.’s stay was “both clinically appropriate and adhered to the generally accepted standards of care,” and granted judgment in favor of the family, concluding they were entitled to coverage. Premera Blue Cross appealed, questioning the district court’s consideration of guidelines from the American Academy of Child and Adolescent Psychiatry. The Ninth Circuit saw no problem with this, as these guidelines were “part of the administrative record,” and therefore “fully within the district court’s discretion to consult.” Additionally, the appeals court noted that “generally accepted standards of medical practice” is an ambiguous term, and the district court was thus permitted to consider evidence outside the administrative record to interpret its meaning. Moreover, A.C.’s treating providers agreed that less intensive lower levels of care were ineffective and that continued residential treatment for A.C. was necessary. Finally, the appeals court focused on furthering the goal of protecting the reasonable expectations of the insured family. “Because the plan does not reference the InterQual criteria, let alone necessitate their application, it was reasonable for N.C. to expect that treatment deemed medically necessary by A.C.’s treating physicians would be covered under the plan.” Thus, the court of appeals concluded that the district court did not err in concluding that the treatment was medically necessary and covered by the plan, and accordingly affirmed its holdings.

W.H. v. Allegiance Benefit Plan Mgmt., No. CV 22-166-M-DWM, 2024 WL 2830792 (D. Mont. Jun. 4, 2024) (Judge Donald W. Malloy). Between November 2017 and September 2020 plaintiff Z.H. received mental health treatment at three inpatient facilities. During this period, Z.H. experienced severe symptoms of self-harm, including cutting and attempts at suicide, and went through the traumatic aftermath of sexual assault. Despite this background, her family’s claims for reimbursement of her inpatient treatment were denied by defendant Allegiance Benefit Plan Management Inc. Allegiance, as third-party claims administrator of the Health Benefit Plan for Employees of Kalispell Regional Healthcare, denied the claims, concluding that this level of treatment was not medically necessary. After exhausting the administrative appeals process, Z.H. and her father W.H. commenced this action against Allegiance and Kalispell Regional Healthcare asserting three causes of action under ERISA: wrongful denial of benefits, violation of the Mental Health Parity and Addiction Equity Act, and a claim for statutory penalties for failure to produce documents upon request. The parties filed cross-motions for summary judgment. Their motions were each granted in part and denied in part by the court in this decision. As an initial matter, the court spelled out that the plan unambiguously grants full discretionary authority to defendants and that the abuse of discretion review standard therefore applies. Under the highly deferential standard of review, the court upheld the benefit denials, although it agreed with plaintiffs that Allegiance ignored evidence that Z.H. engaged in self-harm. “Plaintiffs are correct that the record shows Z.H. had engaged in and threatened self-harm in the days and weeks leading up to her [treatment]… However, this fact is not dispositive. While Defendants’ medical reviewers rejected the idea that Z.H. was indeed suicidal or in danger of harming herself…a conclusion to the contrary would satisfy only the first prong of three necessary criteria under the Milliman Care Guideline.” Broadly, the court disagreed with plaintiffs that the denials were contingent on the suicidality/self-harm factor, “but rather the fact that a lower level of care was a safe option.” The court found that it was reasonable to read Z.H.’s medical records and conclude that substantial evidence supported a finding that an outpatient level of care was appropriate treatment for her. Further, the court was satisfied that defendants’ denial letters constituted a full and fair review under ERISA as they provided specific reasons for each denial and meaningfully responded to the family’s arguments on appeal. Thus, the court concluded that defendants had not abused their discretion in reaching the denials and accordingly granted summary judgment in favor of defendants on the wrongful denial of benefits claim. Next, the court held that defendants did not violate the Parity Act. “The Parity Act merely prohibits plan administrators from ‘employ[ing] different processes, strategies, or evidentiary standards’ to their medical necessity determinations… It does not prohibit different outcomes.” Here, the fact that the plan uses the Milliman Care Guidelines to establish medical necessity classifications and policies for both mental health and physical healthcare was evidence to the court that there was no disparity between the treatment of one and the treatment of the other. Accordingly, defendants were also granted judgment on the Parity Act claim. However, the decision ended with a silver lining for plaintiffs. Judgment was granted in their favor on their statutory penalties claim. The court agreed with plaintiffs that defendants violated the Parity Act’s statutory disclosure requirements by failing to produce a complete copy of the medical necessity criteria and copies of documents used to identify nonquantitative treatment limitations when these documents were specifically requested in writing by the family. “Comparing this request against the statute and the Parity Act Regulations, Defendants were required to provide Plaintiffs with the requested documents.” For this violation, the court ordered defendants to pay the family $110 per day from November 8, 2021, 30 days after the date of their written request, through the date this suit was filed, September 28, 2022, for a total of 294 days and $32,340. Finally, the court declined to rule on prejudgment interest, attorneys’ fees, or costs at this time.

Pleading Issues & Procedure

Second Circuit

Cunningham v. USI Ins. Servs., No. 21 Civ. 01819 (NSR), 2024 WL 2832924 (S.D.N.Y. Jun. 3, 2024) (Judge Nelson S. Roman). A participant of the USI 401(k) Plan, plaintiff Lauren Cunningham, initiated this putative class action against USI Insurance Services, LLC, its board of directors, and the plan committee, alleging defendants breached their fiduciary duties in their administration of the plan. The court previously dismissed Ms. Cunningham’s amended complaint and granted her leave to file a second amended complaint. She did so on February 6, 2024. Once again, defendants sought leave to file a motion to dismiss. The court granted defendants’ motion and pursuant to the briefing schedule their motion to dismiss was set to be fully briefed on June 3, 2024. In the interim, Ms. Cunningham filed a motion seeking a court order requiring defendants to produce the plan’s recordkeeping agreements to “complete the record,” or in the alternative, to convert the motion to dismiss into a motion for summary judgment. In this brief decision the court denied Ms. Cunningham’s motion. The court disagreed with Ms. Cunningham that defendants were required to produce these documents in order to create a complete and accurate record for the motion. “Having a ‘complete record,’ however, is immaterial to whether the Court should consider materials outside of the pleadings on a motion to dismiss. At this juncture, the relevant inquiry is whether Plaintiff incorporates the recordkeeping agreements by reference or relied on them in drafting the SAC. Plaintiff does neither.” Accordingly, the court stated that it may not take judicial notice of the recordkeeping agreements and may not consider them in deciding the motion to dismiss, and therefore declined to order defendants to produce them now. Nor did the court convert the motion to dismiss into one for summary judgment as it will not be considering matters outside of the pleadings. Ms. Cunningham’s requests were therefore denied.

Remedies

Sixth Circuit

Aldridge v. Regions Bank, No. 3:21-CV-00082-DCLC-DCP, 2024 WL 2819523 (E.D. Tenn. Jun. 3, 2024) (Judge Clifton L. Corker). Stories of private equity and corporate raiding are part of the zeitgeist of 2020s America. This action tells one of those tales. It is the story of the restaurant chain Ruby Tuesday, Inc. as told from the vantage point of its franchise managers and other highly compensated employees. Back in the early 1990s the company set up two top hat plans for its upper management, the Executive Supplemental Pension Plan and the Management Retirement Plan. These two plans had their assets in a tax-deferred irrevocable grantor trust which was invested in company-owned life insurance policies. The trust assets were treated as general assets of Ruby Tuesday and therefore subject to the claims of creditors of the company. Because of this trust arrangement the beneficiaries of the plans were vulnerable to the risk of losing their benefits in the event of the company’s bankruptcy, which is exactly what happened. First, in December 2017, Ruby Tuesday was bought by the private equity firm NRD Capital. Following the sale, Ruby Tuesday did not fully fund the trust. Nor did the trustee, defendant Regions Bank, take any action to enforce the employer’s obligation to do so. Through a series of events between 2019 and 2020, Ruby Tuesday’s board of directors terminated the plans, provided written notice to Regions Bank that it was insolvent, and filed for Chapter 11 bankruptcy. The bankruptcy court ordered Regions Bank to liquidate and transfer the trust assets to the bankruptcy estate. Because of what took place, the participants and beneficiaries of the two top hat plans allege they lost over $35 million in benefits. They initiated this action seeking to regain what they had lost. Originally, the 96 plaintiffs filed various state law causes of action, in addition to claims for relief under ERISA. The court narrowed the scope of the case, leaving only plaintiffs’ claim for equitable relief under ERISA Section 502(a)(3). The parties filed cross-motions for summary judgment on this one remaining claim. In this decision, the court granted judgment in favor of Regions Bank and denied plaintiffs’ cross-motion. Plaintiffs alleged “Regions violated its duties as Trustee by failing to adequately protect the Trust property for the benefit of the Plaintiffs as beneficiaries of the Trust, failing to inform the Plaintiff beneficiaries of the rights upon a Change of Control, failing to take action against [Ruby Tuesday] to enforce [its] obligations under the Trust, and failing to distribute the benefits to Participants upon the termination of the Plans.” To begin, the court noted that top-hat plans are exempt from ERISA’s fiduciary requirements. It stated that plaintiffs could not reassert their previously dismissed breach of fiduciary duty claim “under the guise of ERISA § 502(a)(3).” The court then said that even if it assumed plaintiffs demonstrated the bank violated the terms of the trust and the plans, “under principles of federal common law, the relief available under ERISA § 502(a)(3) is limited.” The court focused much of its discussion on the flaws in the equitable relief plaintiffs sought under Section 502(a)(3). Plaintiffs made clear they sought relief in the form of equitable surcharge equaling the amounts each individual would have been entitled to under the plan prior to Ruby Tuesday’s bankruptcy. “Plaintiffs’ ERISA claim, however, hits roadblocks at every turn.” The court was unmoved by plaintiffs’ classification of their relief as equitable. Rather, it viewed their requested relief as compensatory damages, and “money damages are, of course, the classic form of legal relief.” Despite characterizing their relief as equitable, the court concluded that plaintiffs were truly “seeking monetary compensation for the full amount of benefits they would have received under the Plans prior to [Ruby Tuesday’s] Chapter 11 bankruptcy.” Thus, the court did not feel this relief was appropriate or available under Section 502(a)(3). Finally, the court highlighted the undisputed fact that Regions does not possess the trust assets, as they were liquidated and transferred to the bankruptcy estate and then disbursed to Ruby Tuesday’s creditors. For these reasons, the court held that plaintiffs’ ERISA claim failed as a matter of law and thus granted judgment in favor of the trustee.

Withdrawal Liability & Unpaid Contributions

Sixth Circuit

Operating Engineers’ Local 324 Fringe Benefit Funds v. Rieth-Riley Constr. Co., No. 23-1699, __ F. App’x __, 2024 WL 2852006 (6th Cir. Jun. 5, 2024) (Before Circuit Judges Boggs, Kethledge, and Murphy). Plaintiffs-appellants are seven ERISA-governed fringe benefit funds. The funds brought suit against an employer, Rieth-Riley Construction Company, seeking a court order compelling an audit of records from Rieth-Riley related to contributions it paid to the funds pursuant to an expired collective bargaining agreement. In the end, the district court granted summary judgment in favor of Rieth-Riley. It concluded that the funds’ claims under ERISA and LMRA require an active contract and that here, none existed. The district court held “that the Funds had failed to plead a claim for pre-expiration records; and that the Funds’ claim for post-expiration records failed because Rieth-Riley and the Funds no longer had any agreement then.” The funds appealed. In this decision the Sixth Circuit affirmed. First, the court of appeals agreed with the lower court that the complaint said, “or at least strongly suggested – that Rieth-Riley’s ‘indebtedness’ began on August 1, 2019,” and that the funds therefore failed to frame their audit demand to include pre-expiration records relating to the employer’s contributions to the funds. “Here – given what the Complaint said and did not say – we agree with the district court that the Complaint did not state a claim for pre-expiration records.” Second, the Sixth Circuit found that there was not convincing evidence of an existing contract that obligated the employer to make contributions to the funds after the expiration of the collective bargaining agreement. In fact, the funds at first rejected Rieth-Riley’s contributions after the expiration of the collective bargaining agreement, and both the district court and the appeals court considered this strong evidence that even the funds themselves “thought no agreement existed then.” Both ERISA and LMRA require an active contract. Here, the funds could point to no source of an unexpired contract to which both parties mutually assented. “And suffice it to say that, though the record includes plenty of evidence that Rieth-Riley wanted to continue contracting, it includes zero evidence that the Funds or Local 324 did. The district court was correct to grant summary judgment on the Funds’ claim for an audit of post-expiration records.” Accordingly, the district court’s judgment was affirmed. Circuit Judge Danny Boggs dissented in part from the majority opinion. In Judge Boggs’ view, the funds adequately pleaded a claim to audit Rieth-Riley’s pre-termination contributions. Judge Boggs disagreed with his colleagues that the funds were required to attach the audit letter to their complaint in order to state a plausible claim. “The Complaint itself is not an audit request. Rather, it seeks to enforce a previously made audit request. And this previously made audit request (for the period before the CBA’s termination) arose as a contractual right for the Funds and obligation for Rieth-Riley. The majority appears not to dispute this. Further, Rieth-Riley does not dispute the content or authenticity of the letter. Nor does it dispute that it responded to the letter by producing some but not all of the requested documents. I do not see how a party can be unfairly surprised by a claim that references a document that the party not only received but answered.” Judge Boggs therefore respectfully dissented from the majority for faulting the funds for not attaching the document, and he therefore differed from the majority’s conclusion that the complaint never alleged a pre-termination indebtedness claim.

Bristol SL Holdings, Inc. v. Cigna Health & Life Ins. Co., No. 23-55019, __ F.4th __, 2024 WL 2789835 (9th Cir. May 31, 2024); Bristol SL Holdings, Inc. v. Cigna Health & Life Ins. Co., No. 23-55019, __ F. App’x __, 2024 WL 2801531 (9th Cir. May 31, 2024) (Before Circuit Judges S.R. Thomas, Bress, and Johnstone)

When we think of ERISA welfare benefit litigation, we typically think of plan participants suing insurance companies. However, when it comes to medical benefits, we are increasingly seeing suits where the plaintiff is the health care provider, not the patient. In a statutory scheme where the participant is the focus, this raises questions. Should the courts treat providers differently from patients? What rights do providers have under ERISA? Must they bring their claims pursuant to ERISA, or can they bring alternative state law claims?

This week’s notable decision is the latest effort by the federal courts to answer some of these questions. The plaintiff was Bristol SL Holdings, Inc., which to complicate matters further is not even a health care provider. Instead, it is a holding company owned by three former shareholders of Sure Haven Inc., a now-defunct drug rehabilitation and mental health treatment center.

Many of Sure Haven’s patients were insured by defendant Cigna, and had assigned their rights under their benefit plans to Sure Haven to seek reimbursement from Cigna for the cost of their treatment. For several years, Cigna reimbursed Sure Haven without incident. However, Cigna began to suspect that Sure Haven was engaged in “fee forgiveness,” a practice where providers waive or do not collect from their patients the financial contributions the patients are required to pay under their plans (such as deductibles and co-pays).

Cigna contended that this practice, which the parties agreed was not permitted under the plans, “inflates insurance costs at an insurer’s expense by eliminating the financial incentive for patients to seek cheaper in-network care.” (Cigna has been particularly aggressive in policing its fee forgiveness prohibitions.)

Eventually Cigna flagged Sure Haven’s account and began denying its claims unless it provided proof of payment by its patients. In the end, Cigna refused to pay claims for 106 patients totaling $8.6 million. Sure Haven filed for bankruptcy, and after settlement talks broke down, Bristol initiated this action as Sure Haven’s successor-in-interest in 2019, alleging claims under ERISA and California law.

At first, Cigna attacked the ERISA claims on the ground that Bristol lacked standing. Cigna contended that while ERISA allows treatment providers to sue, that rule did not extend to Bristol, which was a step further down the assignment chain. This argument was successful with the district court, but in 2022 the Ninth Circuit reversed, holding that “the first assignee as a successor-in-interest through bankruptcy proceedings who owns all of one healthcare provider’s health benefit claims has derivative standing” under ERISA. (This decision was Your ERISA Watch’s notable decision in our January 19, 2022 edition.)

Back in the district court, Cigna advanced its next argument, which was that Bristol’s state law claims for breach of contract and promissory estoppel were preempted by ERISA. Again, the district court ruled in favor of Cigna, and again, Bristol appealed.

This time Bristol was not as fortunate. The Ninth Circuit first explained the Supreme Court’s familiar test under ERISA’s “clearly expansive” preemption provision, which is that a state law is preempted by ERISA if it has a “reference to” or a “connection with” an ERISA plan. Under the “reference to” prong, a claim must be either “premised on the existence of an ERISA plan” or “the existence of the plan is essential to the claim’s survival.”

The Ninth Circuit had no trouble concluding that Bristol’s state law claims satisfied this test. The court noted that when Sure Haven called Cigna, “the context for this communication concerned whether reimbursement was available under the ERISA plans that Cigna administers.” Furthermore, Sure Haven “was seeking clearance to provide what all agree were plan-covered services,” and the reason its claims were denied was because of a plan provision barring fee forgiveness. Finally, any damages suffered by Sure Haven could not be calculated without consulting the plans, which set forth payment rates. Sure Haven’s claims thus had an “impermissible ‘reference to’” ERISA plans.

The Ninth Circuit arrived at the same conclusion regarding the “connection with” prong. The court explained that a state law “has an impermissible connection with an ERISA plan if it governs a central matter of plan administration or interferes with nationally uniform plan administration, or if it bears on an ERISA-regulated relationship.”

The court ruled that Bristol’s claims satisfied at least the first two of these elements. First, Bristol’s contract law argument was that by verifying plan coverage in pre-treatment telephone calls, Cigna had created an obligation to pay for claims. However, the Ninth Circuit ruled that this alleged obligation would intrude on plan administration. It “would be at odds with the way ERISA plans operate, because reimbursement under a plan is ultimately contingent on information and events beyond the initial verification and preauthorization communications.” The court noted that Bristol’s argument would place Cigna in a “Catch-22” in which “administrators must abandon either their plan terms or their preauthorization programs.” This is “the kind of intrusion on plan administration that ERISA’s preemption provision seeks to prevent.”

For the same reasons, Bristol’s state law claims impermissibly “governed a central matter of plan administration.” The Ninth Circuit stated that “if providers could use state contract law to bind insurers to their representations on verification and authorization calls regardless of plan rules on billing practices, benefits would be governed not by ERISA and the plan terms, but by innumerable phone calls and their variable treatment under state law.” The court ruled that ERISA was designed to prevent this type of “discordant regime.”

In so ruling, the Ninth Circuit distinguished cases cited by Bristol purportedly giving it the right to bring its state law claims. The court found that these cases either involved situations where the ERISA plan at issue no longer applied, or where the insurer falsely informed the provider that the patient had coverage for a particular treatment. Neither scenario applied here, where the Sure Haven patients were indisputably covered by ERISA plans for the services at issue. Thus, Bristol’s state law claims were preempted.

Thus ended the Ninth Circuit’s decision regarding Bristol’s state law claims; the court found them preempted and affirmed. But, you may be wondering, what about Bristol’s ERISA claims that were the subject of its first appeal?

The Ninth Circuit disposed of those claims in a separate memorandum disposition (the second of the two rulings linked above). The district court had ruled in Cigna’s favor on these claims as well, finding that Cigna did not abuse its discretion in determining that Bristol’s claims were not payable because of the plans’ fee-forgiveness prohibitions.

Bristol challenged both the standard of review and the merits of Cigna’s decisions, but the Ninth Circuit affirmed on both issues. First, the court ruled that Cigna had discretionary authority in making its decisions, even if that power was conferred in summary plan descriptions, because the SPDs were valid plan documents and there was no overriding formal benefit plan to the contrary in evidence.

Second, the court ruled that (1) Cigna engaged in “meaningful dialogue” with Sure Haven by explaining that its denials were based on the fee-forgiveness provisions, (2) Cigna reasonably interpreted the plan provisions barring fee-forgiveness, and (3) the evidence supported Cigna’s denials because they were based on an internal investigation, letters to Sure Haven patients, an undercover inquiry into Sure Haven’s rates, and audits of patient records.

As a result, after two trips to the Ninth Circuit and three separate decisions from that court, Bristol was left empty-handed on all of its claims. Preemption proponents now also have another arrow in their quiver.

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

Arbitration

Ninth Circuit

Yagy v. Tetra Tech, Inc., No. CV 24-1394-JFW(ASx), 2024 WL 2715900 (C.D. Cal. May 17, 2024) (Judge John F. Walter). Plaintiff Tamara Yagy is a participant of the Tetra Tech, Inc. and Subsidiaries Retirement Plan. Ms. Yagy commenced this putative class action alleging that the fiduciaries are mismanaging the plan by allocating forfeited nonvested employer contribution funds toward future Tetra Tech contributions to the plan instead of applying them toward plan expenses. She asserts claims for fiduciary breaches, prohibited transactions, and violations of ERISA’s anti-inurement provision. Defendants filed a motion to compel arbitration. The plan’s arbitration provision provides that all claims, disputes, and controversies by participants must be referred to and resolved by confidential binding arbitration. The provision additionally contains a class action and representative action waiver, and requires awards of individual relief. Importantly, the plan also contains a savings clause which states in the event the class action waiver, or any other section of the arbitration provision is found to be unenforceable “the arbitration process as mandated in this Section 8.5 is still required with the minimum change necessary to allow the arbitration requirement to be permissible and/or enforceable.” Tetra Tech moved for an order requiring Ms. Yagy to arbitrate each of her claims on an individual basis and stay the action pending completion of arbitration. Ms. Yagy opposed, and argued the arbitration clause restricts statutory remedies available to her under ERISA and therefore falls within the effective vindication doctrine, meaning they function as “a prospective waiver of a party’s right to pursue statutory remedies.” Ms. Yagy therefore contends that she should be able to seek plan-wide monetary and equitable relief in arbitration. In this decision, the court disagreed. The court was receptive to defendants’ interpretation of the Supreme Court’s 2008 ruling in LaRue v. DeWolff, Boberg & Assocs., Inc., arguing that a participant in a defined contribution plan may sue only to recover losses to his or her individual account, without any recovery for other accounts. The court wrote that Section 502(a)(2) doesn’t suggest that a plaintiff “has an unqualified right to bring a collective action to recoup all of a fiduciary’s losses and gains at once.” Instead, the court agreed with defendants that participants have the authority “to sue a fiduciary for ‘appropriate relief,’ which does not necessarily “include the right to pursue plan-wide monetary relief, rather than relief for a participant’s own district harm.” Accordingly, the court held that although the arbitration provision limits Ms. Yagy to obtain only relief available in her individual capacity, it does not prospectively waive a substantive statutory remedy. The court noted that this particular arbitration provision was distinguishable from other out-of-circuit opinions of late where courts have found arbitration provisions within ERISA benefit plans unenforceable under the effective vindication doctrine. This was so, the court said, because those waivers prohibited a plaintiff “from obtaining any relief that had a plan-wide effect, including for example, the removal of a fiduciary, even though such relief was expressly contemplated by ERISA and would have been available in his or her individual capacity.” In contrast, here, the provision expressly stated that it will not limit any right or relief that may be awarded under ERISA. Given this, the court ruled that the arbitrator may award Ms. Yagy any relief available to her under ERISA “including relief that would benefit the Plan such as removal of a fiduciary.” Therefore, the court granted defendants’ motion to compel arbitration and stayed the action pending the completion of arbitration proceedings. 

Breach of Fiduciary Duty

Ninth Circuit

Perez-Cruet v. Qualcomm Inc., No. 23-cv-1890-BEN (MMP), 2024 WL 2702207 (S.D. Cal. May. 24, 2024) (Judge Roger T. Benitez). Plaintiff Antonio Perez-Cruet is a participant in the Qualcomm, Inc. defined contribution pension plan. In this action he is making very similar claims to those in the Yagy case above. He is litigating whether the fiduciaries of the plan are violating ERISA’s fiduciary duties, engaging in prohibited transactions, and violating the anti-inurement principle by choosing to use forfeited plan contributions to reduce their own future contribution obligations to employees rather than spending the money to defray administrative expenses borne by the plan participants. In essence, Mr. Perez-Cruet argues in his complaint that defendants are putting their own financial interests over those of the participants and beneficiaries every time they chose to put forfeited non-vested plan contributions towards future contribution obligations instead of spending it on administrative costs. Accordingly, he contends that defendants are not acting for the exclusive purpose of benefiting plan participants, are breaching their duty of prudence, inuring plan assets to their own benefit, engaging in prohibited transactions, and breaching their duty to monitor one another. Defendants moved to dismiss, arguing the claims are not plausible because they rely on a mistaken premise that un-vested employer contributions are plan assets. In support of their motion to dismiss defendants relied heavily on proposed guidance from the Department of Treasury stating that a defined contribution pension plan may use forfeited contribution money to do reduce employer contributions under the plan as well as to pay plan administrative expenses, or to increase benefits to plan participants. The court stated throughout its decision that the plausibility standard in ERISA cases is context-sensitive. “Taken in context, Plaintiff describes plausible claims for relief.” Regarding the Treasury Department’s proposed regulation, the court noted that it has not yet been adopted, that it has no force of law, and that it does not come from the Secretary of the Department of Labor “who has authority to define what are assets of a pension plan” under ERISA. Therefore, the court held that the proposed regulation does not have sufficient authority to persuade it that plaintiff’s claims are implausible. In contrast, the court viewed Mr. Perez-Cruet’s narrative as supporting plausible claims for ERISA violations. “Had Defendants used the $1,222,072 of forfeited nonvested contributions from 2021 toward paying Plan administrative expenses, all Plan participants would have benefited by incurring no administrative expense charge to their accounts. Instead, all Plan participants had to pay for administrative expenses that could have been reduced to zero had the Defendants chosen to use forfeited contributions in that way.” It was therefore plausible to the court that defendants are not acting prudently or in the exclusive interest of the plan members, and that they are potentially using what may be plan assets in a way that benefits themselves. The court acknowledged that two important questions are still open: (1) whether nonvested forfeited employer contributions fall within the definition of “plan assets”; and (2) whether nonvested forfeited contributions fall within Section 1103’s exception for “mistaken contributions.” However, the court found “little authority supporting the argument against finding [the claims] to be plausible,” and therefore concluded that they pass the plausibility test to survive the motion to dismiss. As a result, defendants’ motion was denied and the complaint was left undisturbed.

Class Actions

Third Circuit

Luense v. Konica Minolta Bus. Sols. U.S.A., No. 20cv6827 (EP) (JSA), 2024 WL 2765004 (D.N.J. May. 30, 2024) (Judge Evelyn Padin). A putative class of participants and beneficiaries of the Konica Minolta Business Solutions U.S.A. Inc. 401(k) Plan moved for class certification in their breach of fiduciary duty action. The participant plaintiffs allege that Konica, its board of directors, and the plan committee violated their duties of prudence and monitoring by selecting and retaining unreasonably expensive and poorly performing investment funds and by paying excessive compensation in recordkeeping and administrative expenses to Prudential Retirement Insurance and Annuity Company. Plaintiffs sought certification pursuant to Federal Rule of Civil Procedure 23 and appointment of the named plaintiffs as class representatives and Edelson Lechtzin LLP and Berger Montague PC as class counsel. Their motion was granted in this order. To begin the court analyzed the proposed class under the four prongs of Rule 23(a) – numerosity, typicality, commonality, and adequacy. First, the court concluded that the 8,000-member class satisfies numerosity. Second, the court agreed with plaintiffs that questions over the defendants’ conduct are common and plan-wide. The court stated, “the ‘glue’ holding the class together is whether fiduciary duties owed to the entire class were breached and ‘the common answer to the factual question of whether Defendants violated ERISA is sufficient to advance the resolution of the entire class.’” Third, the court found plaintiffs typical of the absent class members as the allegedly “flawed selection process makes uniform the claims for all Plan participants regardless of whether the named Plaintiffs invested in the exact funds alleged to be imprudent.” With regard to allegations of the excessively costly fees, the court expressed it couldn’t image plan members who “are content to pay, pointless fees.” The court therefore disagreed with defendants’ argument that the class certification motion fails because of intra-class conflicts. Fourth, the court found the interests of the named plaintiffs sufficiently aligned with the interests of the absent class members and their counsel to be competent, experienced ERISA class action litigators who are more than qualified to satisfy the adequacy requirement. The court further found the proposed class readily ascertainable based on the included Form 5500s. Finally, the court concluded that certification under Rule 23(b)(1) is appropriate. Multiple actions, the court determined, run the risk of leading to inconsistent and incompatible results and standards, making certification suitable under Rule 23(b)(1)(A). In addition, the court stated that plaintiffs’ claims brought on behalf of the plan alleging breaches of fiduciary duties on the part of the defendants “will, if true, be the same with respect to every class member,’ and thus ‘Rule 23(b)(1)(B) is clearly satisfied.’” For these reasons, the court granted plaintiffs’ motion, certified the proposed class, and appointed class representatives and class counsel.

Fourth Circuit

Trauernicht v. Genworth Fin., No. 3:22-cv-532, 2024 WL 2749831 (E.D. Va. May. 29, 2024) (Judge Robert E. Payne). Class representatives Peter Trauernicht and Zachary Wright have sued the fiduciary of the Genworth Financial Inc. Retirement Savings Plan, Genworth Financial, Inc., on behalf of themselves, the plan, and other similarly situated individuals for breaching its duties under ERISA and causing substantial losses to the plan. Genworth moved to exclude the expert opinions and testimony of plaintiffs’ two experts, Mr. Richard Marin and Dr. Adam Werner. Mr. Marin provided expertise on liability and damages as a former plan fiduciary and board member, asset manager, professor of finance and economics, and the author of a book on pension issues. Dr. Werner relied on Mr. Marin’s opinions and selected comparator funds to calculate the losses to the plan, which he put at over $34 million. Genworth objected to Mr. Marin’s qualifications, investment monitoring framework, the application of his methodology, and the selection of the comparator funds and investment options. Genworth also objected to Dr. Werner’s damages analysis, saying it rests on the opinions of Mr. Marin which the company views as unreliable. The court disagreed with Genworth on each point and denied its motions to exclude. To start, the court found Mr. Marin qualified and possessing specialized knowledge to provide an expert opinion on investment selection and monitoring in the context of ERISA defined contribution retirement plans. Next, the court stated that the methodology used by Mr. Marin “removing a fund after a certain number of quarters for violating specified performance criteria” is reliable under Rule 702 and “is neither new or unique. Instead, it is a well-established method reflective of common-sense.” Moreover, the court concluded that the investment monitoring framework Mr. Marin adopted was readily and appropriately applied to the facts of the case. To the court, it was “not unreasonable to believe that Genworth would have considered those various types of peer funds to be potential alternatives,” which included funds with different investment strategies. “Whether Genworth would have actually replaced [the challenged funds] with a differently managed fund goes to the weight rather than the admissibility of Marin’s opinion.” The court further clarified that Genworth’s challenges to the correctness and thoroughness of Mr. Marin’s opinions should be addressed during cross-examination and through rebuttal evidence. Should Genworth prove Mr. Marin’s views are truly “as arbitrary or as groundless as [it] claims, then the Court can give the testimony no weight.” At this juncture, however, the court was satisfied that Mr. Marin’s expert opinions are sufficiently reliable. Because Genworth’s challenges to Dr. Werner’s testimony derived from its challenges to Mr. Marin’s testimony, the court ruled that Genworth’s objection to Dr. Werner’s testimony likewise failed. Accordingly, neither of plaintiffs’ experts’ opinions were eliminated or reduced by the court’s order and defendant’s motion was denied.

Exhaustion of Administrative Remedies

Fifth Circuit

Brushy Creek Family Hosp. v. Blue Cross Blue Shield of Tex., No. 1:22-CV-00464-JRN, 2024 WL 2789389 (W.D. Tex. May. 30, 2024) (Magistrate Judge Susan Hightower). Plaintiff Brushy Creek Family Hospital, LLC treated a patient enrolled in an ERISA-governed health insurance policy administered by Blue Cross Blue Shield of Texas. After the patient was discharged from the hospital, Brushy Creek submitted claims for the treatment to Blue Cross totaling $51,419. Blue Cross paid only $197.44. In response, Brushy Creek submitted a claim review form to Blue Cross requesting it reconsider its payment determination. Blue Cross did not modify its conclusion. The parties then engaged in mediation of the decision with the Texas Department of Insurance. This too proved unfruitful. Accordingly, litigation followed. Brushy Creek sued Blue Cross in state court asserting state law claims. Blue Cross removed the action to federal court, and Brushy Creek subsequently amended its complaint to assert a claim under ERISA Section 502(a)(1)(B). Now Blue Cross moves for summary judgment. It argues that Brushy Creek failed to exhaust administrative remedies because it never appealed the claim determination using the procedure authorized by the plan. In this decision the assigned magistrate recommended Blue Cross’s motion be granted. First, the magistrate agreed with Blue Cross that Brushy Creek needed to submit an appeal through the process available to the plan participant. It rejected Brushy Creek’s argument that the claim review it submitted was permitted because it was “not specifically excluded by the Plan as an appeal.” The decision stated that the “exhaustion requirement is not excused when a Plaintiff argues that the Plan’s information is incomplete because the plaintiff has a ‘duty to seek the necessary information even if it has not been made available.’” Therefore, the magistrate concluded that the alternative claim review process Brushy Creek perused to resolve the dispute was insufficient to be considered exhaustion of the plan’s claims appeals process of adjudication. Therefore, the magistrate agreed with Blue Cross that the provider failed to exhaust its administrative remedies. The magistrate also disagreed with Brushy Creek that Blue Cross was estopped from asserting failure to exhaust because it never invoked the provisions of the ERISA plan or referred the provider to the proper appeals avenues when the parties were engaged in mediation. Blue Cross, the magistrate ruled, “correctly argues that Brushy Creek failed to ‘make clear it was filing a member-authorized appeal’ because it did not provide [the patient’s] authorization in writing.” As a result, the magistrate did not view the circumstances of this case as demonstrating that Blue Cross affirmatively misled Brushy Creek. Instead, the magistrate concluded that Blue Cross carried its burden to demonstrate that the hospital failed to exhaust administrative remedies and concluded that the hospital failed to show it was entitled to an exception to the exhaustion requirement. Therefore, the magistrate recommended the district court grant Blue Cross’s motion for summary judgment as the ERISA claim for benefits is barred for failure to exhaust.

Life Insurance & AD&D Benefit Claims

Fifth Circuit

Harris v. UnitedHealth Grp., No. 3:23-CV-02486-E, 2024 WL 2734974 (N.D. Tex. May. 28, 2024) (Judge Ada E. Brown). In 2020, an employee of UnitedHealth, Brenda Harris, was diagnosed with colon cancer. Her illness forced her to retire. At the time of her retirement, UnitedHealth mailed her a COBRA Enrollment Notice and information on life insurance conversion. Ms. Harris opted to enroll in COBRA. However, she later decided to end her cancer treatment and discontinue paying the COBRA premiums. She did not realize that COBRA benefits included the life insurance policy premiums in addition to healthcare insurance. “Thus, by discontinuing the COBRA payment and not returning the [Individual Life Conversion Request for Information], both healthcare insurance and life insurance would be terminated as to the Harrises.” At this point, Ms. Harris was getting sicker and sicker. She suffered a stroke and then doctors found a cancerous brain tumor. Ms. Harris died on December 30, 2021. In this action, her widower, Rex Harris, brings claims of violation of ERISA/COBRA, violations of Texas insurance regulating laws, breach of the common law duty of good faith and fair dealing, and declaratory judgment against UnitedHealth and the plan administrative committee for their actions during this period when Ms. Harris was vulnerable and mentally and physically declined, which Mr. Harris alleges led to the loss of life insurance coverage for the family. Defendants moved to dismiss, seeking dismissal of all claims for failure to state a claim pursuant to Rule 12(b)(6). In this decision the court granted the motion to dismiss. Defendants argued that Mr. Harris did not plausibly allege that the COBRA and life insurance notices were vague or that they could not be understood by an average participant. In addition, defendants asserted that they have no duty to provide individualized advice to participants about how to maximize their plan benefits under Fifth Circuit precedent. The court took each of these arguments in turn, and agreed with UnitedHealth on both. First, “the Court agrees that the notices provided to Brenda Harris were perfectly clear and that Harris fails to point to any specific provision of the COBRA Notice or the Life Insurance Notice that is deficient, unclear, or confusing.” Second, the court stated that there is no heighted duty requiring employers to follow up and ensure an individual understands the notices they were provided with, even under circumstances like those alleged here where that individual is suffering from physical and cognitive decline. Instead, the court stated that “nothing in the record [demonstrates] Defendants did not make a good faith effort to provide notification; Harris does not allege such notification was not given, but rather that the notification given was insufficient. Defendants timely sent Brenda Harris her COBRA Notice and her Life Insurance Notice written in a manner to be understood by the average plan participant, and thus Defendants have satisfied their duty under this circuit’s precedent.” Accordingly, the court decided that Mr. Harris failed to state claims under ERISA and COBRA. The court then turned to the state law claims, and determined that they were preempted by ERISA as they essentially sought ERISA-governed benefits via alternative routes. Moreover, the court agreed with defendants that the state law claims directly affect the relationship between a beneficiary and a plan administrator and are premised on an alleged failure to provide proper notice of the right to continued benefits, which is governed exclusively under ERISA. Thus, the court found each of the state law claims impermissibly relates to the ERISA plan and is therefore preempted. For these reasons the court granted the motion to dismiss in its entirety. The court’s dismissal was with prejudice. It determined that amendment would be futile.

Pension Benefit Claims

Third Circuit

Luciano v. Teachers Ins. & Annuity Ass’n of Am., No. 15-6726 (RK) (JBD), 2024 WL 2702341 (D.N.J. May. 24, 2024) (Judge Robert Kirsch). Plaintiff Lorraine Luciano filed a claim with the Teachers Insurance and Annuity Association of America seeking to recover her husband’s pension benefits. Her claim for 100% of her deceased husband’s Qualified Preretirement Survivor Annuity under the Educational Testing Service 401(a) Plan was denied. Instead, defendants paid Ms. Luciano only a 50% benefit. Civil litigation and then arbitration followed. In 2020, the arbitrator determined that the plan terms unambiguously required full benefit payments to Ms. Luciano and issued an award in her favor. On July 26, 2023, the court affirmed the arbitration award. In that same decision, however, the court also granted defendants’ motion for equitable reformation of the plan. Defendants sought to amend the 401(a) Plan to correct a scrivener’s error which resulted in the plan language accidentally eliminating the 50% Qualified Preretirement Survivor Annuity benefit. The court in that decision ruled that the motion was timely and that defendants had not waived their argument for equitable reformation by not raising it during the administrative proceedings or arbitration proceedings. The court further concluded that defendants met their burden of proving that the drafting error was unintentional, providing for a 50% benefit was always intended, and no participants saw the plan language containing the error. Accordingly, the court allowed Educational Testing Service and TIAA to amend the plan to reflect their intent to provide the 50% benefit. Ms. Luciano moved for reconsideration. She argued that the court’s previous opinion had three clear errors: (1) defendants waived their reformation claim by not raising it in arbitration because equitable reformation was a subject of arbitrability and the arbitrator should have decided the issue; (2) the court ignored the arbitrator’s and previous district court findings that the plan called for 100% Qualified Preretirement Survivor Annuity; and (3) defendants waived their reformation argument by failing to advance it during the administrative proceedings. The court denied Ms. Luciano’s motion. It viewed her motion as simply a disagreement with its decision, recycling old arguments that the court previously considered and found unconvincing in its order last July. “On its own, this regurgitation of a previously rejected argument with no new facts or law is enough to deny Plaintiff’s Motion.” The court once again concluded that equitable reformation was not within the scope of arbitration, and defendants had not waived their right to seek equitable reformation for failing to raise it during either the administrative review or during arbitration proceedings. Thus, the court declined to deviate from its earlier holdings and denied Ms. Luciano’s motion for reconsideration.

Pleading Issues & Procedure

Ninth Circuit

Goodsell v. Teachers Health Tr., No. 2:23-cv-01510-APG-DJA, 2024 WL 2750467 (D. Nev. May. 29, 2024) (Judge Andrew P. Gordon). Teachers and other employees of the Clark County School District in Nevada bring this action on behalf of themselves and other similarly situated individuals against various individuals and entities in charge of the Teachers Health Trust, a health benefit coverage trust, for grossly mismanaging the plan. As relevant here, plaintiffs sue the former chairman of the Teachers Health Trust Board, Michael Steinbrink, for negligence, gross negligence, breach of fiduciary duty, negligent misrepresentation, violations of Nevada insurance regulations, per se negligence, consumer fraud, and fraudulent misrepresentations and omissions. Mr. Steinbrink moved to dismiss all of the claims against him. The court granted the motion, with leave to amend. Those familiar with ERISA will recognize immediately that this plan is not governed by ERISA because it is maintained by government entities for its employees and therefore exempted from ERISA. Nevertheless, the health trust at issue here expressly states that it is meant to conform to ERISA’s requirements and that “the trustees shall follow the constraints of ERISA.” Accordingly, the court applied ERISA principles in this decision, including analyzing the impact of the Supreme Court’s decision in Thole v. U.S. Bank on the employees’ standing. Relying on Thole, the court concluded that here the plaintiffs are entitled to “defined benefits” and that they have no equitable interest or property rights in the Teachers Health Trust’s funds. “Therefore, to the extent that Steinbrink caused a loss to the [Teachers Health Trust], that claim belongs to [the trust], not individual plan participants.” Therefore, the court agreed with Mr. Steinbrink that plaintiffs, as plan participants, have a problem with standing under Thole to sue for waste of the trust’s funds. However, the court agreed with plaintiffs that the Supreme Court left open the possibility that participants in defined benefit plans may have standing to allege waste of plan funds if they allege “the mismanagement of the plan was so egregious that it substantially increased the risk that the plan and the employer would fail to be able to pay the participants’ future…benefits.” Here, the court said plaintiffs have not currently alleged as much, but granted them leave to amend their claims relating to the depleted trust funds because there is a possibility they may be able to do so, particularly as the trust was experiencing monthly deficits of over $200,000 and board meetings included concerns that the plan was at unsustainably low funding levels. Nevertheless, the court dismissed plaintiffs’ claims for benefits against Mr. Steinbrink with prejudice because the trust agreement’s plain language states participants cannot sue trustees for the trust’s failure to pay a plan benefit, meaning trustees cannot be held personally liable. The remainder of the decision went over more of Mr. Steinbrink’s arguments for dismissal, such as identifying potential problems with statutes of limitations, the lack of private rights of action under state insurance laws, and analyzing sufficiency of the pleadings on the merits of each of the claims. Thus, Mr. Steinbrink’s motion to dismiss was granted and plaintiffs were given leave to replead their claims and file a third amended complaint consistent with this order.

Provider Claims

Third Circuit

Abira Med. Labs. v. Avera Health Plans, No. 23-03465 (GC) (TJB), 2024 WL 2721390 (D.N.J. May. 28, 2024) (Judge Georgette Castner). This action is just one of more than forty filed by plaintiff Abira Medical Laboratories, LLC suing health insurance companies, healthcare plans, welfare funds, third-party plan administrators, and plan sponsors for failure to pay for lab testing including reimbursement of COVID-19 tests. In this particular case that Your ERISA Watch has chosen as an exemplar, Abira sues Avera Health Plans and its affiliates for breach of contract, breach of the implied covenant of good faith and fair dealing, fraudulent misrepresentation, negligent misrepresentation, promissory estoppel, equitable estoppel, quantum meruit, unjust enrichment, and violations of the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Avera Health Plans moved to dismiss for lack of personal jurisdiction and for failure to state a claim. Despite not asserting a cause of action under ERISA or alleging that the health insurance plans are governed by ERISA, Abira “contends that personal jurisdiction is appropriate here because ‘ERISA is unique for having relaxed jurisdictional requirements.’” Like other courts in the District of New Jersey have done, this court rejected Abira’s attempt to invoke ERISA’s jurisdictional provisions without asserting a count under ERISA. Defendant argued that even if the court were to construe the amended complaint liberally to view it as asserting claims for benefits under ERISA, neither Abira nor plan members pursued administrative appeals, so any ERISA claim would have to be dismissed for failure to exhaust administrative remedies. The court stated that it would only decide failure to exhaust at the summary judgment stage. Nevertheless, it wrote, “Plaintiff has not plausibly established it has standing to pursue an ERISA claim for benefits.” Accordingly, the court stated that ERISA jurisdictional provisions are not properly invoked in this case and therefore spent the remainder of the decision examining whether it has general or specific jurisdiction over Avera Health Plans as to the state common law claims and the alleged violations of the FFCRA and the CARES Act. Ultimately, it concluded that it did not. The court held that defendant is not incorporated or headquartered in New Jersey and does not conduct business in the state so as to give rise to general jurisdiction. Further, the court concluded that Abira failed to state sufficient bases for specific jurisdiction and that nearly identical allegations have been rejected by the Third Circuit as creating specific jurisdiction. Accordingly, the court found that it does not have jurisdiction over Avera Health Plans and therefore granted the motion to dismiss the action.

Fifth Circuit

Guardian Flight LLC v. Health Care Serv. Corp., No. 3:23-CV-1861-B, 2024 WL 2786913 (N.D. Tex. May. 30, 2024) (Judge Jane J. Boyle). The plaintiffs in this action are two air ambulance providers, Guardian Flight LLC and Med-Trans Corporation. Air ambulances are emergency healthcare services that transport individuals by helicopter to hospitals when they are experiencing severe medical distress. Before the No Surprises Act was passed in 2022, patients often got hit with large medical bills when they received out-of-network emergency services such as air ambulance transportation. This occurred through a practice called “balance billing,” in which patients were responsible for the difference between the billed rate for their medical services and the amount paid by their health insurance plan. Now, under the No Surprises Act, health insurance companies, healthcare plans, and providers resolve billing disputes through a statutorily mandated independent dispute resolution system. The parties in this action, the plaintiff air ambulance companies and defendant Health Care Service Corporation, did just that after plaintiffs provided services to insured patients. HCSC has failed to pay the awards determined by the certified independent dispute resolution handler. Plaintiffs filed this action seeking to require HCSC to pay them the award. Plaintiffs assert three causes of action. First, they bring a claim for violation of the No Surprises Act. Second, plaintiffs assert an ERISA claim for improperly denied benefits. Third, plaintiffs bring a claim for either unjust enrichment or, in the alternative, quantum meruit. HCSC moved to dismiss all three claims. Its motion was granted, with prejudice, in this decision. To begin, the court concluded that there is no private right of action to judicially enforce dispute resolution awards under the No Surprises Act. The court held that to establish an implied private right of action plaintiffs need to demonstrate that the Act creates both a right and a remedy. “While Plaintiffs present compelling arguments that the [Act] created a right, they fail to identify any ‘statutory intent’ to create a remedy to enforce that right.” The court concluded that the Act does not contemplate a procedural judicial mechanism enabling the providers to enforce their rights and instead the language of the No Surprises Act “almost entirely forbid[s] judicial review of [independent dispute resolution] decisions strongly suggest[ing] that Congress did not intend to confer Plaintiffs a cause of action to enforce [these] awards.” To the court it was notable that Congress decided to distinguish No Surprises Act language from language in the Federal Arbitration Act (FAA), by incorporating some sections of the FAA into the No Surprises Act, but not its judicial award confirmation procedures. “If Congress intended to create a procedural mechanism under the NSA, it simply could have incorporated one more section from the FAA, yet Congress did not do so. The Court interprets this omission in the NSA to mean that Congress did not intend to create a remedy under the NSA.” Accordingly, the court dismissed the claim asserted under the No Surprises Act. Next, the court addressed plaintiffs’ ERISA claim. Here, it identified a problem with standing. Under ERISA, healthcare providers with valid assignments of benefits, like plaintiffs, are standing in the shoes of the covered plan participants and beneficiaries. However, under the No Surprises Act patients can no longer be “balance billed” for the amount in dispute. To the court, because the No Surprises Act eliminates beneficiaries’ financial responsibility, emergency healthcare providers inheriting the beneficiaries’ rights likewise have no financial responsibility, and thus they have not suffered a harm under ERISA. “The [Health Care Service Corporation] beneficiaries suffered no concrete injury from [their insurance provider] allegedly failing to pay [the dispute resolution] awards to Plaintiffs. As the Court discussed above, the passage of the NSA means that patients…are no longer financially responsible for balanced billing,” so the beneficiaries would not incur a financial injury even if their health plan does not pay their provider. Arguments to the contrary were rejected by the court. It viewed all the ways patients might be hurt by such a holding as speculative and hypothetical. Thus, the court dismissed the ERISA cause of action for lack of standing. Finally, the court dismissed the unjust enrichment/quantum meruit claim because the air ambulances did not provide the insurance company “with any direct benefit.” The court ended its decision by clarifying that all of the claims were dismissed without leave to amend because the defects in the complaint are incurable which makes amendment futile. If courts elsewhere in the country adopt similar holdings, insurance companies may quickly take advantage of the situation as they would be financially incentivized to stop honoring No Surprises Act dispute awards. It’s hard to think this was the result Congress intended. Either way, Your ERISA Watch will keep our eyes peeled for future developments, and what we see, you’ll hear about.

Severance Benefit Claims

Second Circuit

Fromer v. Public Serv. Enterprise Grp., No. 1:20-cv-963 (BKS/CFH), 2024 WL 2784276 (N.D.N.Y. May. 30, 2024) (Judge Brenda K. Sannes). Plaintiff Howard Fromer worked for Public Service Enterprise Group Incorporated for eighteen years as director of market policy in Albany, New York. In April of 2020 Mr. Fromer was informed that his position was being eliminated. At the same time he was offered a new position as strategy manager, in the same pay grade as his old job. However, this new position was not located in Albany. Mr. Fromer believed it would require communing more than fifty miles from his current location. Accordingly, he declined the offer. Mr. Fromer then applied for severance benefits under the PSEG Separation Allowance Plan for Non-Represented Employees. Pursuant to the terms of the plan an employee involuntarily terminated “where the only position offered to [him] within the Company…would require [the individual] to increase their one-way commuting distance by more than [fifty] miles” is entitled to separation pay. Mr. Fromer’s application, however, was denied. His employer reasoned that he was not entitled to benefits because his “reporting location [and commuting distance] would not change,” and he would “continue to work from home.” In this ERISA action, Mr. Fromer challenges his employer’s denial of severance benefits under the plan. The parties filed cross-motions for summary judgment. They agreed that the plan administrator was granted discretionary authority and therefore that the arbitrary and capricious standard applies. As an initial matter, the court declined to consider evidence outside the administrative record. Although the court agreed with Mr. Fromer that there is an inherent conflict of interest at play, it nevertheless found that he did not meet his burden of establishing good cause to expand evidence beyond the administrative record because he “provided no reason why he was unable to submit the extra-administrative record evidence during the administrative process.” The court then turned to the merits of the parties’ positions. Ultimately, it found that both sides had a reasonable interpretation of the word “commute.” Presented with two decent and rational readings of the plan language, the court was left to favor defendants’ view given the highly deferential standard of review. Therefore, the court upheld the denial based on the commonly understood definition of “commute” to mean “one’s daily travel to and from one’s regular workplace.” Summary judgment was accordingly granted in favor of defendants.

Subrogation/Reimbursement Claims

Ninth Circuit

AGC Int’l Union of Operating Eng’rs Local 701 Health & Welfare Tr. Fund v. Beeler, No. 2:24-cv-00725-JHC, 2024 WL 2701690 (W.D. Wash. May. 24, 2024) (Judge John H. Chun). A self-funded health insurance plan, the AGC-International Union of Operating Engineers Local 701 Health and Welfare Trust Fund, brings this action seeking reimbursement of payments it made on a covered family’s medical claims. The health trust moved for ex parte entry of a temporary restraining order (TRO) requiring defendants not to dispose of or otherwise dissipate the third-party settlement proceeds it contends are subject to subrogation. Plaintiff’s TRO motion was granted in this decision. The court held: (1) the health trust is likely to succeed on the merits of its claim for reimbursement; (2) defendants are likely to dissipate the settlement proceeds if no action is taken; which (3) may cause the plan to suffer irreparable harm absent entry of a TRO; (4) the balance of equities weighs in favor of granting the motion because it will maintain the status quo; and (5) granting the TRO advances the public interest as it will ensure the stability of ERISA plans.