Federation of Americans for Consumer Choice, Inc. v. United States Dep’t of Labor, No. 6:24-cv-163-JDK, __ F. Supp. 3d __, 2024 WL 3554879 (E.D. Tex. Jul. 25, 2024) (Judge Jeremy D. Kernodle)

American Council of Life Insurers v. United States Dep’t of Labor, No. 4:24-cv-00482-O, 2024 WL 3572297 (N.D. Tex. Jul. 26, 2024) (Judge Reed O’Connor).

In November of last year, Your ERISA Watch departed from its usual practice of covering a case of the week to report on the Department of Labor’s issuance of a new proposed rule and related exemptions defining who qualifies as a fiduciary investment advisor under ERISA, and to briefly summarize the long and complicated history of the Fiduciary Rule.

In creating the rule, the Department of Labor (“DOL”) held a notice and comment period in which it received over 600 comments, and held hearings in which scores of witnesses testified over several days. Ultimately, on April 25, 2024, the DOL issued a final Fiduciary Rule and set of prohibited transaction exemptions that mostly tracked but also differed in a number of respects from the proposal. By expanding the universe of advisors who are considered fiduciaries, the Rule aims to prohibit, or at least regulate, a great deal of conflicted investment advice that is costing retirees tens of billions of dollars in lifetime retirement savings. 

As predicted, several legal challenges quickly followed. Two of these have now achieved significant, although not yet final, victories. Both involved a federal Texas district court ruling that the effective date of the Fiduciary Rule should be stayed.

In Federation of Americans for Consumer Choice, an organization made up of marketing entities and insurance agents and agencies brought suit in the Eastern District of Texas challenging the Fiduciary Rule as inconsistent with ERISA, the Internal Revenue Code, and the Administrative Procedure Act (“APA”), and as arbitrary and capricious agency action. Shortly thereafter, the Federation moved for a preliminary injunction of enforcement of the Rule or a stay of the Rule’s September 23, 2024 effective date. The Federation also moved to enjoin one of the exemptions, prohibited transaction exemption (“PTE”) 84-24, which requires insurance agents to adhere to impartial conduct standards and make specified disclosures. In his order, Judge Kernodle granted the stay until further notice.

The court started with an exhaustive trek through the history of the Rule. It began with the statutory definition of fiduciary in ERISA, which includes any person who “renders investment advice for a fee or other compensation,” 29 U.S.C. § 1002(21)(A), and then discussed a regulation promulgated by the DOL in 1975 setting forth a five-part test for who qualifies as an “investment advice fiduciary.” The court then addressed an amended regulation adopted by DOL in 2016 to narrow the five-part test, which was struck down by the Fifth Circuit as in “conflict with the plain text” of ERISA, and “inconsistent with the entirety of ERISA’s ‘fiduciary’ definition” in its treatment of financial service providers. Chamber of Commerce v. Dep’t of Labor, 885 F.3d 360 (5th Cir. 2018).

The court then turned to the four familiar factors traditionally examined in determining whether to grant injunctive relief: (1) likelihood of success on the merits; (2) the threat of irreparable harm to the challengers if no relief is granted; (3) whether other interested parties are likely to be irreparably harmed by a grant of relief; and (4) the public interest. The court determined that each factor supported the grant of a stay, which it saw as a less drastic remedy than a preliminary injunction.

With respect to the likelihood of success, the court largely agreed with plaintiffs that the 2024 Fiduciary Rule suffered from the same defects as the 2016 Rule previously struck down by the Fifth Circuit in the Chamber of Commerce decision. Moreover, in perhaps the first application in the ERISA context of the Supreme Court’s recent decision in Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024), the district court determined that it “owes no deference to DOL’s interpretation of ERISA.”

The court concluded that the 2024 Fiduciary Rule conflicts with ERISA in at least two ways by eliminating two prongs of the 1975 test – that the advice be given on a “regular basis” and that it serve as the “primary basis” for the investment decisions – both of which the court saw as inexorably tied to the “relationship of trust and confidence” that the Chamber of Commerce decision identified as embedded in the statutory definition. The court also faulted the DOL’s rulemaking in numerous other respects, including that the Rule improperly elides the distinction between investment advice and sales pitches, and that it improperly exceeds DOL’s rulemaking authority by regulating IRAs.

As if that were not enough, the court also relied on the new-fangled “major questions doctrine” – which posits that extraordinary agency powers require clear grants of authority – to supply “an additional basis for concluding that the 2024 Fiduciary Rule violates the APA.” In this regard, the court reasoned that “[a]ccepting DOL’s interpretation of ERISA would grant it ‘virtually unlimited power to rewrite’ the statute’s text” after 50 years with regard to the definition of investment advice.

Relying mostly on the Chamber of Commerce decision, the court also found that DOL acted arbitrarily and capriciously in amending PTE 84-24, finding, among other things, that DOL improperly created a private right of action to enforce some of the “best interest”/impartial conduct standards on newly regulated entities.

The court next found that allowing the Rule to go into effect would indisputably subject the plaintiffs to substantial compliance burdens. Finally, with respect to the fourth and fifth factors, the court found “that the injuries likely to occur if a stay is not granted easily outweigh ‘any harm that will result if the injunction is granted.’”

The court therefore issued an indefinite stay of the effective date of the regulation and of PTE 84-24. The court declined to limit the stay to the parties in the case, finding such a limitation would be both unwarranted and unwieldy.          

In American Council of Life Insurers, another insurance group brought a similar suit challenging the Fiduciary Rule in the Northern District of Texas. Judge O’Connor took note of Judge Kernodle’s decision issued just two days earlier and stated that he “agrees with and fully incorporates that analysis here.”

However, Judge O’Connor also noted that “two [additional] aspects of the Rule remain at issue here: Amendment to Prohibited Transaction Exemption 2020-02, 89 Fed. Reg. 32,260 (Apr. 25, 2024) and Amendment to Prohibited Transaction Exemptions 75-1, 77-4, 80-83, 83-1, and 86-128, 89 Fed. Reg. 32,346 (Apr. 25, 2024).” Those aspects of the Rule also failed to pass muster in Judge O’Connor’s estimation and thus he ruled that a stay of the effective dates of those PTEs was likewise warranted.

The court stated the four relevant factors slightly differently – (1) a substantial likelihood of success on the merits; (2) a substantial threat of irreparable harm; (3) the balance of hardships weighs in the movant’s favor; and (4) issuance of a preliminary injunction will not disserve the public interest – and noted that the third and fourth factors merge when the government is the defendant. All of the factors, the court found, supported staying the Rule.

On the first factor, Judge O’Connor found not just likelihood of success, but virtual certainty, for essentially the same reasons as Judge Kernodle. Essentially, the court found that “Defendants arguments are nothing more than an attempt to relitigate the Chamber decision.”

The court next found that plaintiffs would suffer undisputed irreparable harm by having to expend costs on compliance that would not be recoverable. As to the third and fourth factors, the court found that “Plaintiffs’ strong showing of a likelihood of success is dispositive of these final factors because ‘there is generally no public interest in the perpetuation of unlawful agency action.’”

As in the Federation decision, Judge O’Connor found that a stay was justified as a less drastic remedy than a preliminary injunction, and like Judge Kernodle he declined to “limit its relief to only the parties in this case.” Moreover, given the court’s conclusion that success on the merits was virtually guaranteed, it declined to remand to DOL as “inefficient and a potential waste of resources.”  

The importance of the Rule for retirees is hard to overstate given overwhelming evidence of the negative impact of conflicted investment advice on retirement savings, especially for low and moderate income retirees. Nevertheless, the prospect that the stays will be lifted in either district court, or that DOL will ultimately prevail in those courts, appears dim. Indeed, as noted above, Judge O’Connor bluntly stated that “Plaintiffs are virtually certain to succeed on their claims that the Rule exceeds DOL’s statutory authority.”

So, once again, it appears up to the Fifth Circuit whether any or all of the Fiduciary Rule will ever go into effect. We at Your ERISA Watch remain ever hopeful. Stay tuned as always for updates on this important topic.   

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

Attorneys’ Fees

First Circuit

Gomes v. State St. Corp., No. C.A. 21-cv-10863, 2024 WL 3596892 (D. Mass. Jul. 30, 2024) (Judge Mark L. Wolf). This April, the court preliminarily approved a proposed class action settlement in this litigation alleging breaches of fiduciary duties under ERISA regarding the State Street Salary Savings Program retirement plan. If the court grants final approval of the proposed settlement after the August 8 fairness hearing, defendants will contribute $4.3 million to a common fund, out of which class members will receive distributions minus litigations costs, attorneys’ fees, and other expenses. Plaintiffs moved for attorneys’ fees, seeking a common fund fee award totaling $1,433,333.33, or 33.3% of the settlement fund. Plaintiffs are represented by lead counsel Scott + Scott and co-counsel Peiffer Wolf Carr Kane Conway and Wise. In their motion, plaintiffs’ counsel calculated their lodestar as $1,592,595 and argued that this amount supports the reasonableness of their requested common fund fee. They assert that their lodestar was calculated using the attorneys’ regular hourly rates charged for their services and that these amounts “have been accepted in other complex or class action litigation, subject to subsequent annual increases.” However, neither firm represented that they actually charge their clients these hourly rates, as their practices are primarily contingent. This detail was significant to the court, which deferred ruling on plaintiffs’ fee motion. The court ordered counsel to file affidavits explaining why the requested one-third common fund fee award is reasonable in view of two other settled class action lawsuits in which Scott + Scott served as lead counsel and the attorneys were awarded fees between 20-30%. In addition, the court required counsel to discuss whether either law firm has billed any clients on an hourly rather than contingent basis, and, if so, to state which of their attorneys billed clients hourly, how many clients were billed on an hourly basis, and the hourly rate that each attorney charged. The court stated that once it has these facts it will then possess the necessary information to determine whether the requested fee award is indeed fair and reasonable.

Breach of Fiduciary Duty

Ninth Circuit

Johnson v. Carpenters of W. Wash. Bd. of Trs., No. 23-35370, __ F. App’x __, 2024 WL 3579492 (9th Cir. Jul. 30, 2024) (Before Circuit Judges Friedland, Mendoza, and Desai). Three union carpenters who were participants in two multi-employer pension plans appealed the dismissal of their putative class action against the Carpenters of Western Washington Board of Trustees and Callan, LLC in which they alleged fiduciary breaches and plan mismanagement. In this decision the Ninth Circuit reversed and remanded. The court of appeals concluded that plaintiffs had standing, and that they sufficiently stated their claims of imprudence and failure to monitor under ERISA. First, the Ninth Circuit held that plaintiffs need not allege absolute losses to their retirement accounts to sufficiently allege a concrete financial injury. Instead, plaintiffs’ allegations that the value of their accounts would be greater today had defendants not invested in the challenged indexes was considered by the Ninth Circuit to be more than sufficient. Moreover, the appeals court agreed with plaintiffs that their injury was fairly traceable to defendants’ actions. In addition, the court of appeals disagreed with the district court’s position that the COVID-19 pandemic was the intervening and independent cause of plaintiffs’ injury. Rather, it held that it was plausible “that the pandemic was simply the trigger that revealed the alleged consequences of Defendants’ actions,” and that defendants’ alleged conduct “left the Plans vulnerable to a negative market event,” making COVID not an independent cause of plaintiffs’ loss, “but part of the foreseeable consequences of Defendants’ actions, according to Plaintiffs.” Furthermore, the Ninth Circuit held that plaintiffs stated their claims under ERISA by adequately alleging that defendants violated their fiduciary duties when they chose to make the challenged investments and when they failed to monitor and remove them. “We have held that a fiduciary violated its duty of prudence under similar circumstances, in which an investment advisor recommended investing a large portion of a retirement plan into investments that were excessively risky given the plan’s conservative aims.” Based on the foregoing, the court of appeals reversed the dismissal of plaintiffs’ complaint and remanded to the district court.

Disability Benefit Claims

Sixth Circuit

Halleron v. Reliance Standard Life Ins. Co., No. 3:22-CV-00633-GNS-CHL, 2024 WL 3585139 (W.D. Ky. Jul. 29, 2024) (Judge Greg N. Stivers). Dr. April Halleron stopped working and applied for short-term and long-term disability benefits in the summer of 2022 after she was diagnosed with postural orthostatic tachycardia syndrome (“POTS”), a condition linked with low blood pressure, high pulse rates, dizziness, fatigue, and fainting. Dr. Halleron believed she could no longer work as a physician due to her low energy levels, dizziness, light-sensitivity, body pains, weakness, and episodes of near fainting. However, the insurance company responsible for her disability coverage, Reliance Standard Life Insurance Company, disagreed and denied both of Dr. Halleron’s claims. It concluded that Dr. Halleron’s POTS was a preexisting condition making her ineligible for short-term benefits. Her long-term claim, while not barred by a preexisting conditions exclusion, was still denied after Reliance determined that Dr. Halleron did not meet the policy’s definition of total disability. In this action, Dr. Halleron challenges both denials. The parties filed competing motions for summary judgment. In this decision the court granted Dr. Halleron’s motion for judgment and denied Reliance Standard’s summary judgment motion. To begin, the court stated that it need not resolve the parties’ dispute over the applicable review standard because “the denials do not survive even an arbitrary and capricious review.” Next, the court disagreed with Reliance Standard that Dr. Halleron’s claims for benefits are barred because she failed to appeal its denials through the administrative appeals process. The court deemed Dr. Halleron to have exhausted her administrative remedies because Reliance Standard failed to strictly comply with ERISA’s claims handling regulations, and thus Dr. Halleron is entitled to “immediate access to judicial review.” As for the denials themselves, the court concluded that neither one was “the product of a deliberate, principled reasoning process.” With regard to the long-term disability benefit claim, the court criticized Reliance Standard’s one-paragraph decision, which it stated lacked substance, supporting evidence, medical analysis, and consideration of whether Dr. Halleron’s symptoms prevent her from performing her job functions. It found that the denial did little more than recite Dr. Halleron’s medical history, and that it completely failed to address her treating physician’s opinions, which rendered the denial arbitrary and capricious. And with regard to the short-term disability denial, the court found that the denial was cursory and lacked a detailed analysis of why it determined the POTS diagnosis was a preexisting condition. Accordingly, the court said that it too was arbitrary and capricious. For these reasons, the court entered judgment in favor of Dr. Halleron. However, it chose to remand back to Reliance Standard as the flaw here was the integrity of the decision-making process, and remanding to the plan administrator is generally considered the appropriate remedy under such circumstances. Finally, the court ordered Reliance Standard to file a brief in response to Dr. Halleron’s request for attorneys’ fees and costs.

Eighth Circuit

Weyer v. Reliance Standard Life Ins. Co., No. 23-2862, __ F. 4th __, 2024 WL 3577374 (8th Cir. Jul. 30, 2024) (Before Circuit Judges Colloton, Shepherd, and Stras). This ERISA benefits action was filed by Kelsey Weyer after her long-term disability benefits were terminated by defendant Reliance Standard Life Insurance Company. Ms. Weyer suffers from a host of medical conditions which have left her with serious physical and cognitive limitations. Given these limitations, and based on the entirety of Ms. Weyer’s medical record, the district court entered judgment in her favor when it ruled on the parties’ cross-motions for summary judgment. In reaching its decision, the district court concluded that the evidence in the record supported that Ms. Weyer was totally disabled from performing any occupation. Reliance Standard appealed the district court’s order. It argued that Ms. Weyer is not totally disabled, and even if she were, her mental health conditions, including a history of anxiety and depression, caused or contributed to her total disability such that her benefits should be limited to a maximum of 24 months pursuant to the plan’s mental health maximum lifetime benefits clause. On appeal, the Eighth Circuit found no clear error in the district court’s de novo review of Reliance Standard’s decision and thus affirmed. It held that the district court, as the factfinder, reasonably interpreted what it saw as the overwhelming evidence in the record establishing that Ms. Weyer lacked even sedentary work capacity. On the other hand, the evidence cited by Reliance Standard in support of its decision to terminate benefits was viewed by the appeals court as not enough to conclude that “a definite and firm…mistake has been made.” Accordingly, the Eighth Circuit stated the lower court did not clearly err in finding that Ms. Weyer was totally disabled under the terms of the policy. In addition, the court of appeals found no fault with the lower court’s findings that Ms. Weyer’s physical conditions independently rendered her disabled and that Ms. Weyer’s anxiety and depression were not the cause of her disability but “simply downstream effects of her physical illness.” Thus, the Eighth Circuit was not persuaded that the district court clearly erred in any of its holdings and upheld the judgment in its entirety.

ERISA Preemption

Ninth Circuit

University of S. Cal. v. Heimark Distrib., No. CV 24-5550 FMO (SSCx), 2024 WL 3582625 (C.D. Cal. Jul. 30, 2024) (Judge Fernando M. Olguin). The University of Southern California sued Heimark Distributing, LLC in California state court, on behalf of its hospitals, alleging state law claims for breach of implied contract, unfair business practices, unjust enrichment, quantum meruit, and accounts stated, seeking reimbursement for medical services provided to a patient insured under Heimark’s employee health plan. Heimark removed the action, asserting that the federal court system has subject matter jurisdiction because the state law claims are preempted by ERISA. In this decision the district court disagreed and remanded the lawsuit back to state court. The court found that the complaint failed the two-part Davila complete preemption test because USC does not allege anywhere in the complaint that it was assigned benefits. Noting that a defendant bears the burden of showing that a plaintiff’s claims are completely preempted, the court concluded that Heimark did not meet that burden on the face of the complaint. Moreover, it stated that “the mere fact that no written contract exists between plaintiff and defendant does not require the conclusion that the Patient assigned his or her ERISA benefits to plaintiff.” Accordingly, the court found it lacked jurisdiction over the matter and sent the case back to the Superior Court of the State of California.

Life Insurance & AD&D Benefit Claims

Third Circuit

Gratz v. Gratz, No. 3:19-cv-1341, 2024 WL 3598835 (M.D. Pa. Jul. 31, 2024) (Judge Julia K. Munley). Plaintiffs Jillian and Tyler Gratz are the children of decedent Dr. Richard Gratz. In this ERISA action the siblings allege that Dr. Gratz’s older brother, defendant Michael Gratz, exercised undue influence on their father to procure a change in beneficiary on his life insurance coverage following the death of his wife. Defendant moved for summary judgment. His motion was denied as the court concluded that plaintiffs raised questions of material fact regarding whether their father had a weakened intellect following his wife’s death and whether Michael had a “confidential relationship” with Dr. Gratz which influenced his change in beneficiary. “Notably, the inquiry into the exercise of undue influence is a highly fact-intensive one.” Viewing the evidence in the light most favorable to plaintiffs, the court stated that a reasonable finder of fact could conclude that Dr. Gratz suffered from severe mental distress and mental health disorders after the death of his wife, and that these mental health concerns could have left him in a weakened intellectual state and potentially subject to undue influence. Further, the court agreed with plaintiffs that it is plausible that the brothers had a close personal relationship. Moreover, the court expressed that it could only determine the absence of undue influence after assessing the credibility of the parties and other witnesses. “As credibility is at issue, summary judgment in favor of the defendant regarding the absence of undue influence is inappropriate.” For these reasons, the court found that summary judgment should not be granted.

Pension Benefit Claims

Third Circuit

Rombach v. Plumbers Local Union No. 27 Pension Fund, No. 2:20-cv-01348, 2024 WL 3554571 (W.D. Pa. Jul. 26, 2024) (Judge Mark R. Hornak). For over thirty years plaintiff Clyde Rombach, III worked for W.G. Tomko, Inc (“Tomko”) and contributed to a multi-employer pension fund, the Plumbers Local Union No. 27 Pension Fund. In his later years of employment, Mr. Rombach worked as a Project Manager at Tomko. This position remained covered by the Union and required Tomko to make contributions to the fund on Mr. Rombach’s behalf. Then, in 2009, Mr. Rombach assumed a new position, Senior Project Manager. As Senior Project Manager, Mr. Rombach took on some new responsibilities and his Union membership and contributions to the plan ended at this time. Neither the Union nor the Plan took issue with these status changes. On August 15, 2016, Mr. Rombach turned 60 and applied for early retirement benefits under the Plan. The Trustees acknowledged that Mr. Rombach was eligible for early retirement benefits based on his age and years of covered service, “but simultaneously suspended his pension benefit based on his then-current work at Tomko in the position of Senior Project Manager.” Following an ultimately unsuccessful administrative appeal of the benefit decision, Mr. Rombach commenced this litigation alleging the Plan improperly suspended his early retirement pension benefits from October 2016 to December 2019 under the terms of the plan in violation of ERISA. The parties cross-moved for summary judgment under abuse of discretion review. The court concluded that the Trustees’ ultimate decision “was inherently arbitrary” and entered summary judgment in favor of Mr. Rombach. The court ordered the Plan to “take all steps necessary to reverse the financial and any other impact on Rombach of the suspension during the time window at issue, including payment over of the suspended early pension benefits, prejudgment interest, and post-judgment interest…each at the statutorily applicable rate.” It was significant to the court that Mr. Rombach’s change of position from Project Manager to Senior Project Manager resulted in Union membership ending and plan contributions stopping, and stated that these changes “must logically…carry meaning.” However, as the court noted, the Trustees equated the two positions and entirely failed to explain or even address the differences between the two for the purposes of Mr. Rombach’s eligibility for early retirement benefits. By treating the two jobs as “one and the same,” simply because some of the daily tasks of the work at each position overlapped, the court concluded that defendants had abused their discretion. In fact, as the Trustees noted, the Senior Project Manager was responsible for supervising the Project Managers, “plainly placing it at least one step above the Project Manager position.” It was important to the court that the Trustees did not address this fact when deciding to suspend the early retirement benefits. Zooming out, the court took issue with defendants’ broader proposition that all jobs at Tomko were necessarily included within the Union’s industry trade. It stated that such a reading “would lead to the result that an employee moving into a top executive position from a Plan-covered position would also be considered to be employed in a ‘trade or craft in the industry.’ Under any standard of review, that unreasonably gives too broad a reading to the suspension language within the Plan’s provision. In adopting such a theory in Rombach’s case, the Trustees acted unreasonably, erroneously, and arbitrarily.”

Pleading Issues and Procedure

Tenth Circuit

Andrew C. v. United Healthcare Oxford, No. 2:18-cv-877-HCN, 2024 WL 3553301 (D. Utah Jul. 26, 2024) (Judge Howard C. Nielson, Jr.). Plaintiffs Andrew and Paige C., individually and on behalf of their minor child, sued United Healthcare Oxford under ERISA seeking judicial review of denied claims for healthcare benefits. After the lawsuit was filed the parties filed a stipulated motion to dismiss the action without prejudice under Rule 41(a)(1)(A) after they agreed that United would reconsider the family’s claims for benefits. The court granted that motion. However, the family was not satisfied by United’s reconsideration of their claims, and subsequently moved to reopen the case pursuant to Federal Rule of Civil Procedure 60(b). The court stressed that relief under Rule 60(b)(6) is only available in “extraordinary circumstances,” and “appropriate only when it offends justice to deny such relief.” The court ruled that plaintiffs failed to meet these demanding standards. In particular, the court emphasized that the voluntary nature of the plaintiffs’ dismissal weighed strongly against the requested relief, as the plaintiffs are free to file a new action challenging United’s denial of their claims for benefits. Accordingly, the court denied the motion to reopen the case.

Provider Claims

Third Circuit

Samra Plastic & Reconstructive Surgery v. Cigna Health & Life Ins. Co., No. 23-21810 (MAS) (RLS), 2024 WL 3568844 (D.N.J. Jul. 29, 2024) (Judge Michael A. Shipp). An out-of-network plastic and reconstructive surgery center, Samra Plastic & Reconstructive Surgery, filed this lawsuit on behalf of itself and as an assignee of its patient against Cigna Health and Life Insurance Company and Bottomline Technologies, Inc. seeking reimbursement of 80% of the patient’s breast surgery, or $154,256. Samra asserted causes of action under ERISA, as well as state law claims for breach of contract, promissory estoppel, and account stated. Defendants moved to dismiss the complaint. They argued that Samra lacks derivative standing to assert ERISA claims, the state law claims are preempted by ERISA, and that Samra also fails to state its claims. The court tackled each issue independently. First, the court agreed with defendants that the plan contains a clear and unambiguous anti-assignment provision which precludes Samra from bringing an ERISA suit as an assignee. Accordingly, the court granted the motion to dismiss the ERISA causes of action. Nevertheless, the court disagreed with defendants on the issue of ERISA preemption. With regard to complete preemption, the court held that Samra could not bring claims under Section 502 and that its state law claims relate to an independent oral contract or quasi-contract between the parties which took place prior to the surgery and therefore are independent of the ERISA plan. The same was true regarding the court’s analysis of Section 514 conflict preemption. The court held that the claims at issue do not require any examination of the ERISA plan, meaning the plan is not a “critical factor in establishing liability.” Instead, the court agreed with Samra that its claims arise from a separate agreement between the parties wherein Cigna agreed to pay 80% of billed charges. Moreover, the court explained that the complaint sufficiently and plausibly states each of its three state law causes of action. For these reasons, the court denied defendants’ motion to dismiss the breach of contract, promissory estoppel, and account stated claims. Thus, the motion to dismiss was granted in part and denied in part, as detailed above.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Attorneys’ Fees

Second Circuit

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

Breach of Fiduciary Duty

Third Circuit

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

Class Actions

Seventh Circuit

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

Disability Benefit Claims

Eleventh Circuit

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

Discovery

Ninth Circuit

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

Tenth Circuit

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

ERISA Preemption

First Circuit

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

Fourth Circuit

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

Pension Benefit Claims

Fifth Circuit

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

Ninth Circuit

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

Plan Status

Tenth Circuit

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

Pleading Issues & Procedure

Third Circuit

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

Tenth Circuit

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

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

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

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

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

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

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

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

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

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

If a class representative wants to litigate over harms that other class members suffered but were not identical to the ones the representative suffered, when should courts address the “disjuncture between the harm that the plaintiff suffered and the relief that she seeks”?

Some courts have simply ruled that plaintiffs have standing as to their own individual claims and then addressed the disjuncture during the class certification stage. Other courts have addressed the disjuncture at the pleading stage, deciding whether the plaintiffs have standing to pursue the claims of others. The Fifth Circuit called the first approach the “class certification approach” and the second the “standing approach.”

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

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

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

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

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

Last August the Fifth Circuit dismissed these concerns, concluding that FBG’s pricing scheme was either “uniform or amenable to a pricing grid,” and that plaintiffs were seeking not only monetary relief, but also equitable remedies, which “undoubtedly involves the entire class – or any other members of the CERT and CPT trusts[.]” Thus, Rule 23(b)(1) was satisfied.

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

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

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

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

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

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

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

Class Actions

First Circuit

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

Discovery

First Circuit

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

Disability Benefit Claims

Eighth Circuit

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

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

Life Insurance & AD&D Benefit Claims

Fifth Circuit

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

Pension Benefit Claims

Ninth Circuit

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

Pleading Issues & Procedure

Fifth Circuit

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

Sixth Circuit

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

Provider Claims

Third Circuit

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

Remedies

Tenth Circuit

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

Statute of Limitations

Fifth Circuit

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

Venue

Seventh Circuit

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