Cedeno v. Sasson, No. 21-2891-cv, __ F.4th __, 2024 WL 1895053 (2d Cir. May. 1, 2024) (Before Circuit Judges Lohier, Menashi, and Robinson)

The Federal Arbitration Act is famously broad and generally requires courts to treat arbitration agreements as “valid, irrevocable, and enforceable.” Courts have ruled that the FAA establishes a liberal federal policy favoring arbitration agreements. As a result, while litigants often try to find ways to evade the FAA, they are seldom successful.

However, if you are a loyal reader of Your ERISA Watch, you know about the “effective vindication” doctrine. This doctrine was created by the Supreme Court as a possible exception to the FAA’s mandate. In a series of decisions, culminating in American Express Co. v. Italian Colors Restaurant (2013), the Supreme Court has repeatedly held that if an arbitration provision prevents a prospective litigant from vindicating a statutory right in arbitration, the litigant may be able to escape arbitration’s clutches.

The problem with this doctrine is that although the Supreme Court has recognized it, the Court has never used it to invalidate an arbitration provision, prompting some observers to wonder whether it is real or merely hypothetical.

According to several Circuit Courts of Appeal, the doctrine is very much alive in the ERISA context. In the past few years, the Third, Seventh, and Tenth Circuits have all examined arbitration provisions and invalidated them based on the effective vindication doctrine. These cases examined claims brought by plaintiffs under Section 502(a)(2) of ERISA, which allows suits for breach of fiduciary duty. The courts concluded that because these actions were brought on behalf of the plan, and sought plan-wide relief, arbitration provisions that only allowed for individual relief prevented the plaintiffs from “effectively vindicating” their rights under ERISA and thus were invalid.

With this background in mind, the Second Circuit examined the effective vindication doctrine in this week’s notable decision. The plaintiff, Ramon Dejesus Cedeno, is a former employee of defendant Strategic Financial Solutions. In 2017 Strategic established an ERISA-governed employee stock ownership plan. Cedeno contends that defendants, which include the trustee of the ESOP and several company officers who sold their shares to the ESOP, violated their fiduciary duties to the ESOP by allowing the ESOP to purchase shares for more than fair market value. Cedeno sought relief under ERISA, including Section 502(a)(2), and requested plan-wide relief in the form of “restoration of Plan-wide losses, surcharge, accounting, constructive trust on wrongfully held funds, disgorgement of profits gained from the transaction, and further equitable relief as the court deems necessary.”

However, as you have surely guessed, the ESOP had an arbitration provision. This provision required claimants to arbitrate, only allowed claims brought in an individual capacity, and prohibited any remedy to any party other than the claimant.

Defendants moved to compel pursuant to the FAA, but the district court denied their motion. (Your ERISA Watch covered this decision in our November 10, 2021 issue.) The court concluded that the effective vindication doctrine applied: “Because the arbitration provision limited Cedeno to recovering losses within his individual plan account, the provision would impermissibly limit the availability of Plan-wide remedies explicitly authorized by ERISA, and thus was unenforceable.” Defendants appealed to the Second Circuit.

The Second Circuit began by noting that the “core concern of the FAA is protecting the enforceability of agreements to vindicate substantive rights[.]” Thus, if an arbitration provision waives substantive rights and remedies, “courts will invalidate provisions that prevent parties from effectively vindicating their statutory rights.” The court noted that it had used this effective vindication doctrine in 2020 to invalidate an arbitration provision in a payday loan agreement that required the application of Chippewa Cree tribal law instead of allowing for the full range of remedies under state and federal law.

With this introduction, the rest of the decision was a foregone conclusion. The court, invoking the Supreme Court’s decision in Massachusetts Mut. Life Ins. Co. v. Russell (1985), noted that while Section 502(a)(2) claims may be asserted by an individual, they are brought in a representative capacity on behalf of the plan and seek plan-wide relief. Thus, with his Section 502(a)(2) claim, Cedeno was not simply seeking a remedy for losses in his particular account; he was seeking a remedy on behalf of the plan that would affect the accounts of others as well and perhaps lead to non-monetary equitable relief.

However, the ESOP arbitration provision “requires claimants like Cedeno to bring their claims solely in their ‘individual capacity and not in a representative capacity,’ and prohibits them from seeking or receiving ‘any remedy that has the purpose or effect of providing additional benefits or monetary or other relief to any Employee, Participant or Beneficiary other than the Claimant.’” Furthermore, the arbitration provision “limits a claimant’s remedy to recovering for the alleged losses to the claimant’s accounts,” as well as other relief “as long as it ‘does not include or result in the provision of additional benefits or monetary relief to any Employee, Participant, or Beneficiary other than the Claimant[.]’”

The Second Circuit flatly stated, “These restrictions effectively preclude Cedeno from pursuing the remedies available to him under Section 502(a)(2)” and thus “effectively prevent him from vindicating his substantive statutory rights[.]”

The court then turned to three arguments raised by defendants. Defendants first argued that the FAA allows for waiver of rights, and thus there is “no unwaivable right to proceed through collective action.” The court stated that this argument “missed the mark for at least two reasons.” First, Cedeno was not asserting a “free-floating right to proceed through collective action for its own sake; he is asserting a right to pursue the full range of statutory remedies to enforce his substantive statutory rights” under ERISA. The arbitration provision did not allow for an “alternative path” to obtain these remedies. If enforced, it “would leave claimants like Cedeno without any means of securing the full range of statutory remedies available to him.” Second, defendants’ argument ignored that Cedeno’s claims were “inherently representational.” He was litigating on behalf of “an absent principal,” i.e., the plan, and thus could not be compelled to waive the rights of that principal.

Defendants’ second argument was that ERISA contains no “clearly expressed Congressional intention” to prohibit agreements to engage in individualized arbitration. In other words, in a battle between ERISA and the FAA, there was no reason ERISA should prevail. The Second Circuit, however, explained that Cedeno was not arguing that there was a conflict between the two statutes, and noted that the Supreme Court had already rejected this type of oppositional analysis in Italian Colors.

Third, defendants argued that Cedeno could effectively vindicate his substantive rights under the arbitration provision. The Second Circuit rejected this contention, explaining that even if Cedeno could individually be made whole through arbitration, the provision still prevented him from obtaining the plan-wide relief guaranteed to him through Section 502(a)(2). The court stated there was no way to “slice and dice” the relief under this section in a way that made Cedeno whole without affecting the rest of the plan. Furthermore, there was no way to apportion the equitable relief Cedeno sought, such as an accounting, imposition of a constructive trust, and disgorgement, among other remedies.

Finally, the Second Circuit cited the decisions of the Third, Seventh, and Tenth Circuits, which all agreed and “reinforce our conclusion that [the arbitration provisions] are unenforceable with respect to Cedeno’s Section 502(a)(2) claims.” In short, “Because Cedeno’s avenue for relief under ERISA is to seek a plan-wide remedy, and the specific terms of the arbitration agreement seek to prevent Cedeno from doing so, the agreement is unenforceable.”

The court was not unanimous, however. Judge Menashi dissented, rejecting Cedeno’s “tendentious reading of ERISA” which created a “manufactured conflict” between ERISA and the arbitration clause.

Judge Menashi offered three criticisms of the majority decision. First, the effective vindication doctrine “is a questionable principle of uncertain legal status” and thus courts should hesitate before applying it. Second, “neither Section 502(a)(2) nor Section 409(a) of ERISA requires Cedeno to act in a representative capacity on behalf of the plan.” Judge Menashi contended instead that “an ERISA plaintiff represents his own individual interest,” and attempted to distinguish Russell and other cases suggesting the contrary with respect to Section 502(a)(2). Third, Judge Menashi argued that “the arbitration clause allows Cedeno to obtain any legal or equitable relief that is necessary to make him whole.” Judge Menashi acknowledged the majority’s concern that equitable relief that only applied to Cedeno would be confusing because it would be unclear how that relief would affect other plan participants, but he shrugged this off, concluding, “that is how equitable remedies work.”

Judge Menashi is clearly in the minority on this issue, but his dissent may give defendants the boost they need to get this issue reheard en banc, or possibly in front of the Supreme Court. Stay tuned to Your ERISA Watch for future developments.

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

Arbitration

Fifth Circuit

Aramark Servs. v. Aetna Life Ins. Co., No. 2:23-CV-00446-JRG, 2024 WL 1839465 (E.D. Tex. Apr. 26, 2024) (Judge Rodney Gilstrap). Aramark Services, Inc. sponsors group health plans governed by ERISA. Since 2018, Aramark has hired Aetna Life Insurance Company to provide the plans with third-party administrative services, including evaluating claims for payments submitted by providers. The parties’ relationship is governed by a master services agreement which contains an arbitration provision. That provision requires disputes among the parties to be settled by binding arbitration in accordance with the American Arbitration Association rules except for “temporary, preliminary, or permanent injunctive relief or any other form of equitable relief.” Aramark has sued Aetna under ERISA Sections 502(a)(2) and 502(a)(3) for breaches of fiduciary duties as third-party plan administrator. In response, Aetna filed a petition to compel arbitration and moved to stay proceedings pending arbitration. Thus, the question before the court was whether the claims asserted by Aramark are subject to mandatory arbitration. However, before the court could make that assessment, it needed to address the threshold issue of whether the parties delegated to the arbitrator the exclusive power to decide whether a particular claim is arbitrable. The court ultimately agreed with Aramark that they had not: “the Court finds that the parties did not clearly and unmistakably delegate all threshold issues of arbitrability to the arbitrator… The plain language and most natural reading of the Arbitration Provision is that the parties agreed to delegate arbitrability to the arbitrator in accordance with the AAA rules for all disputes except those seeking any form of equitable relief, which are carved out in the same sentence.” The court thus found that it should decide the threshold issue of arbitrability and therefore turned to its discussion of whether Aramark’s ERISA claims are properly subject to mandatory arbitration. Relying on the Supreme Court’s analysis in Cigna v. Amara, the court agreed with Aramark that its Sections 1132(a)(2) and (a)(3) claims under ERISA for monetary damages are properly equitable and not subject to mandatory arbitration under the arbitration provision. “In the Court’s view, the critical question in Amara was whether a surcharge remedy against an ERISA fiduciary was equitable. Nothing in Amara suggests that the Supreme Court’s reasoning is limited only to § 1132(a)(3).” For the court, it was critical that Aetna is a fiduciary and therefore “analogous to a trustee.” Importantly, Aetna itself has previously taken the position that ERISA claims seeking money damages, including under Section 502(a)(2), are equitable. “ERISA claims seeking money damages are either equitable or they are not, and Aetna should not be able to take inconsistent positions on this issue across different cases.” For these reasons, the court concluded that Aramark’s claims all fall within the equitable relief carve-out of the arbitration provision and are therefore not subject to mandatory arbitration. Accordingly, the court denied the motion to stay the case pending arbitration.

Discovery

Ninth Circuit

Stambaugh v. Reliance Standard Life Ins. Co., No. CV-23-08140-PCT-DLR, 2024 WL 1854499 (D. Ariz. Apr. 22, 2024) (Judge Douglas L. Rayes). Plaintiff Laura Stambaugh worked as a medical technologist for over 15 years, until 2019, when she stopped working and submitted a claim for disability benefits. Ms. Stambaugh suffers from Type 2 diabetes which has led to diabetic neuropathy. Although Ms. Stambaugh’s claim for short-term disability benefits was approved, her claim for long-term disability benefits was denied by defendant Reliance Standard Life Insurance Company. Reliance Standard originally retained a non-doctor “clinical consultant” to review Ms. Stambaugh’s claim. When Ms. Stambaugh appealed the denial, Reliance Standard then retained a third-party medical records review vendor called Medical Consultants Network to hire a doctor to render an opinion of Ms. Stambaugh’s medical records. The doctor the vendor hired was not a neurologist, but an endocrinologist who opined that he could not speak to the neuropathy and would “defer to a neurologist to determine the extent to which it may be causing limitations.” Nevertheless, the endocrinologist concluded that Ms. Stambaugh was not disabled. At no point did Reliance Standard communicate with either of Ms. Stambaugh’s treating physicians, nor engage in a vocational assessment of the duties and physical requirements of Ms. Stambaugh’s occupation. In this ERISA action, Ms. Stambaugh is challenging the adverse benefit decision. Before the court here was Ms. Stambaugh’s motion for discovery in which she sought information pertaining to Reliance Standard’s conflicts of interest, claims handling practices, and the particulars of how her claim was handled. The court granted the discovery motion in its entirety. The court stated that it cannot determine the weight, if any, to assign to the conflict of interest here “without extrinsic evidence of bias obtained through discovery.” On the allegations of the complaint alone, the court was suspicious of Reliance Standard’s handling of Ms. Stambaugh’s claim, saying it appears to raise red flags about whether the conflict had in fact influenced the decision to deny benefits. “Defendant’s actions in administering the claim appear to be inconsistent with an unconflicted fiduciary earnestly acting as an ERISA fiduciary.” Moreover, the court was aware that it is Ms. Stambaugh’s burden to prove how egregious Reliance Standard’s conflicts of interest were and what effect they had on its decision to deny the claim. Therefore, the court held that Ms. Stambaugh would be disadvantaged if she did not have the chance to conduct discovery into these topics. “Facts involving the Defendant’s processing and investigation of the claim – including the history of the outside expert’s opinions for insurance companies, the relationship of Defendant with the outside vendor and outside expert, and the reasons given for the denial of the claim – are relevant to the inquiry.” As a result, the court stressed the need for discovery, including all of the requested depositions, interrogatories, and requests for productions. The scope of Ms. Stambaugh’s requested information, the court held, was not disproportionate to the needs of the case nor unduly burdensome for the insurance company. “Although the value of the LTD benefits may seem negligible to Defendant, they are not negligible to the Plaintiff, who purportedly is unemployed.” Thanks to this decision, Ms. Stambaugh will receive the discovery she wished for and through it perhaps glean a better understanding into why Reliance Standard acted the way it did.

ERISA Preemption

Ninth Circuit

Vernon v. Metropolitan Life Ins. Co., No. 2:23-cv-01829 DJC AC PS, 2024 WL 1857438 (E.D. Cal. Apr. 26, 2024) (Magistrate Judge Allison Claire). A pro se plaintiff, Jimmy Lee Vernon Jr., brought this action against Metropolitan Life Insurance Company (“MetLife”) asserting state law causes of action arising from MetLife’s failure to pay life insurance benefits to him from a life insurance policy belonging to his deceased father. Mr. Vernon asserted state law claims for breach of contract, breach of fiduciary duties, breach of implied obligation/covenant of good faith and fair dealing, breach of contractual duty to pay a covered claim, intentional misrepresentation, concealment, and negligence. MetLife moved to dismiss all claims as completely preempted by ERISA. The court in this order agreed with MetLife that the claims are preempted and granted the motion to dismiss. However, particularly in light of the fact that Mr. Vernon is without legal representation, the court dismissed the complaint without prejudice and allowed Mr. Vernon to file an amended complaint asserting causes of action under ERISA. As an initial matter, the court took judicial notice of the policy and the summary plan description. Relying on the plan documents, the court stated that it was clear the plan is governed by ERISA as it is a welfare benefit plan established by an employer, General Motors, for the purpose of providing benefits to its employees. Having determined the plan is an ERISA plan, the court agreed with MetLife that ERISA preempts the state law claims asserted because “ERISA provides the exclusive remedial scheme for any claims that relate to a plan [and] preempts any claims for extracontractual damages.” Therefore, the question of whether Mr. Vernon is entitled to proceeds from his father’s life insurance policy is governed by federal law. In order to state a claim, Mr. Vernon will have to amend his complaint to allege claims for benefits and/or breaches of fiduciary duties under ERISA, and has 30 days to do so.

Medical Benefit Claims

Tenth Circuit

L.L. v. Anthem Blue Cross Life & Health Ins. Co., No. 2:22-CV-00208-DAK, 2024 WL 1937900 (D. Utah May. 2, 2024) (Judge Dale A. Kimball). Plaintiff L.L. initiated this action to challenge his healthcare plan’s denial of claims for his teenage daughter J.L.’s stay at a sub-acute outdoor behavioral health facility in 2019. The family’s claim for benefits was denied under the plan’s exclusion for experimental and investigative treatment, although the plan terms did not expressly exclude wilderness therapy or other outdoor behavioral health programs. During the family’s appeal of the denial, they offered evidence from an expert in outdoor behavioral therapy, Dr. Michael Gass, who has devoted his career to the study of this type of care. Dr. Gass provided studies contradicting the plan’s conclusion that the efficacy of wilderness therapy programs for the treatment of mental health disorders is questionable and “there is no proof or not enough proof it improves medical outcomes.” Nevertheless, the denial was upheld during the administrative appeal process, and defendants reiterated that their internal policy considers outdoor behavioral health therapy investigative and experimental. In response to Dr. Gass, the denial letter stated only that the reviewers had “reviewed all the information that was given [to them by the family] with the first request for coverage.” L.L. sued the administrator of his plan, his former employer DLA Piper LLP, and the claims administrator, Anthem Blue Cross Life and Health Insurance, challenging the adverse benefit decision. The parties filed cross-motions for summary judgment. Before the court addressed the merits of the denial, it needed to resolve the parties’ dispute over the appropriate standard of review. The plan did not contain an express discretionary clause. Instead, it was peppered with phrases such as the claims administrator shall “evaluate the claim information and determine the accuracy and appropriateness of the procedure,” and medically necessary procedures are those which the “claims administrator determines to be…appropriate and necessary for the diagnosis or treatment of the medical condition.” The family argued that this language only outlined how decisions were made under the plan, which fell short of granting clear discretionary authority. The court disagreed. It held that the plan language confers authority to the claims administrator and allows it to determine medical necessity. “It is well established that language such as this is sufficient to grant discretionary authority.” Accordingly, the court concluded that the appropriate standard of review is arbitrary and capricious. Plaintiffs argued that under either standard of review, defendants’ decision was not reasonable because it was based on an internal policy rather than the plan itself, the care J.L. received was not investigational, and defendants did not engage in a meaningful dialogue with the family during the internal appeals process. The court disagreed with the plaintiffs on the first matter. It found that the internal policy was incorporated into the plan and defendants were allowed to rely on the policy to aid in their coverage determination. However, the court agreed strongly with plaintiffs on their second two points. The court found that defendants failed to engage in a meaningful dialogue with the family and failed to dispute their assertion that the care was not investigational as defined by the plan. The court thus found that defendants acted arbitrarily and capriciously because the denial failed to “contain a reasoned analysis for its unexplained conclusions.” In short, the court stated that “[i]nsurers cannot just say something is investigational because of a policy and refuse to engage in meaningful dialogue when plaintiffs present contradictory information.” Thus, the court granted summary judgment in favor of plaintiffs and denied defendants’ cross-motion for summary judgment. The decision ended with the court concluding that remand was the proper remedy where, as here, defendants failed to engage with plaintiffs and adequately consider the evidence. Defendants were accordingly ordered to review the claim anew in light of this decision.

S.B. v. Bluecross Blueshield of Tex., No. 4:22-CV-00091, 2024 WL 1912224 (D. Utah May. 1, 2024) (Judge David Nuffer). Plaintiff R.B. started treatment at a licensed residential treatment center, Solacium Sunrise, on June 29, 2021 to treat mental health conditions. R.B. is a beneficiary of the American Heart Association Managed Healthcare Plan. In this action, R.B. and her father, S.B., seek reimbursement of the more than $330,000 in healthcare costs the family incurred from R.B.’s treatment. They assert ERISA claims for benefits, denial of a full and fair review, and for violation of the Mental Health Parity and Addiction Equity Act. AHA moved for dismissal of the complaint, arguing the claims are not plausible. It argued that plaintiffs cannot state a plausible claim for benefits because the plan requires residential treatment centers to have 24-hour onsite nursing in order to be covered, and it is undisputed that Solacium Sunrise does not meet this requirement. In addition, AHA argued that plaintiffs were not prejudiced by a lack of full and fair review because they were not entitled to benefits under the terms of the plan. Finally, AHA argued that plaintiffs failed to plead a plausible Parity Act claim and that their Parity Act claim lacks a sufficient nexus to the adverse benefit determination. In this decision the court granted the motion to dismiss the wrongful denial of benefits and the full and fair review claims, but denied the motion to dismiss the Parity Act violation claim. The court agreed with AHA that the plan unambiguously requires all residential treatment centers to have a 24-hour onsite nurse, including for residential treatment centers for children and adolescents. The court concluded that the plan’s definition of residential treatment centers for children and adolescents “does not limit or modify” the plan’s broader definition for all residential treatment centers, which requires licensed nursing all hours of the day. Because the plan unambiguously does not provide for R.B.’s care at Solacium Sunrise, the court dismissed both the claim for benefits and full and fair review claim. The court agreed with the family that their complaint plausibly alleged they were denied a full and fair review. However, it ruled that they could not sustain this claim because its remedy would be to order a remand, which was pointless because they were not entitled to benefits under the plan and thus there was no prejudice. However, the court’s determination that the benefits were not covered under the plan terms did not undermine plaintiffs’ Parity Act claim. In this claim, the family alleges that the Plan used generally accepted standards of care to draft the plan’s treatment limitations and that only the 24-hour onsite nursing requirement for mental health residential treatment centers exceeds the generally accepted standards of care, while comparable medical and surgical facilities do not contain such additional requirements. For pleading purposes, the court was satisfied that these allegations plausibly allege a violation of the Parity Act. The court further held that other cases similarly challenging Blue Cross’s 24-hour onsite nursing requirement under the Parity Act which were dismissed were distinguishable because of the ways they framed their allegations. Moreover, the court agreed with the family that their Parity Act claim has a nexus to the adverse benefit determination because the provision in the plan that caused the residential treatment centers to exceed their generally accepted care standards was the same 24-hour onsite nursing requirement that foreclosed their claims for benefits. Finally, the court declined to take judicial notice of a document provided by AHA because the plaintiffs challenged the authenticity of the document and their complaint did not incorporate it by reference. Accordingly, R.B. and S.B. may move forward with their Parity Act violation claim.

S.F. v. Cigna Health & Life Ins. Co., No. 2:23-CV-213-DAK-JCB, 2024 WL 1912359 (D. Utah May. 1, 2024) (Judge Dale A. Kimball). In the past, Your ERISA Watch has reported on a health insurance practice called “step therapy,” sometimes referred to as “fail first,” which requires patients to fail at lower levels of treatment before qualifying for the higher level care their providers have recommended. These policies are often present in mental healthcare cases, and also in claims for prescription drugs, and they are often a barrier to patients getting prescribed healthcare. In this action we get a look at the reverse, when patients step down from residential treatment centers to a lower “intermediate behavioral health” level of care, and how these claims too run into insurance roadblocks. At issue here are wilderness therapy and outdoor youth programs, which the two Cigna-administered self-funded healthcare plans at issue excluded from coverage both expressly and implicitly as “experimental, investigational, or unproven services.” Because of these categorical exclusions, the two patients and their families were denied reimbursement of their claims for the treatment they received at outdoor behavioral health facilities in Utah. The patients’ denial letters stated that their claims were denied because of a “lack of peer reviewed, evidence-based scientific support for the effectiveness of wilderness therapy or outdoor youth programs.” In this action, the two families of participants and beneficiaries sued their ERISA-governed plans and Cigna, the third-party administrator who issued the denials. All three defendants moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Cigna also moved to dismiss one family’s claims pursuant to Federal Rule of Civil Procedure 12(b)(1). The motions to dismiss were entirely granted in this order. To begin, the court agreed with Cigna that one of the families, plaintiffs S.F. and E.F., should have their claims dismissed for lack of Article III standing because Cigna is no longer the claim administrator for the Slalom Plan. Plaintiffs disagreed, arguing that Cigna’s lack of a current role shouldn’t shield it from liability or absolve its responsibilities arising from its prior role during the relevant time period. Relying on a decision from the Eighth Circuit, the court concluded that a former claims administrator is not in a position to make current or future claims determinations and no longer has access to plan funds to pay claims, meaning it cannot provide the relief the F. family plaintiffs seek in any of their counts. “Because there is no question of fact as to whether Cigna can provide any redress to S.F. and E.F. under the Slalom Plan, the court dismisses S.F. and E.F.’s claims against Cigna for lack of standing under Federal Rule of Civil Procedure 12(b)(1).” The court then addressed exhaustion, and defendants’ arguments that all of the plaintiffs’ ERISA benefit claims should be dismissed because neither set of plaintiffs did a second-level appeal required under their plans and permitted under ERISA. Plaintiffs argued that the plans use the language “may” for the second-level appeal to an independent review organization, which indicates that the appeal was voluntary. The court did not agree. “Even though the text states that members may file an appeal if they are unsatisfied with the decision on their first appeal, it does not state that members can simply skip the step before bringing an ERISA claim in court. A member does not need to pursue any appeal. But if they want to file a lawsuit, they need to exhaust the two levels of appeals in the plan. Both Plans state that a plaintiff should only ‘bring a civil action under section 502(a) of ERISA if [they] are not satisfied with the outcome of the ‘Appeals Procedure.’ The Plan makes clear that the ‘Appeals Procedure’ includes both levels of appeal. Therefore, while the Plans do not require a member to file a second level appeal, if the member wants to bring a lawsuit, the member must complete both levels of appeals.” Accordingly, the court agreed with defendants that plaintiffs could not sustain their ERISA benefit claims because they failed to exhaust administrative remedies prior to suing. Finally, the court dismissed the Mental Health Parity and Addiction Equity Act claim. It determined that this claim failed because plaintiffs did not plausibly allege a non-speculative disparity between an exclusion for mental health benefits and that for analogous medical/surgical benefits. The experimental exclusion, the court concluded, “broadly excludes wilderness therapy programs and outdoor youth programs, whether to treat medical, surgical, or mental health care.” Thus, the court dismissed the whole of plaintiffs’ action and closed the case.

Pension Benefit Claims

Third Circuit

The Procter & Gamble U.S. Bus. Servs. Co. v. Estate of Rolison, No. 3:17-CV-00762, 2024 WL 1861537 (M.D. Pa. Apr. 29, 2024) (Judge Karoline Mehalchick). Long ago, in the 1980s, decedent Jeffrey Rolison and Margaret M. Sjostedt were a cohabitating couple. Mr. Rolison was employed by Procter & Gamble and was enrolled in The Procter & Gamble Profit-Sharing Trust and Employee Stock Ownership Plan. In 1987, Mr. Rolison designated Ms. Sjostedt as his beneficiary. Years went by and circumstances changed. The couple broke up; Ms. Sjostedt married someone else and became Ms. Losinger while Mr. Rolison married someone else and had two children. What did not change was the beneficiary designation. Over the years Procter & Gamble routinely informed Mr. Rolison of his option to designate a new beneficiary, but he never did so. This continued even after Procter & Gamble switched to an online beneficiary designation system, which Mr. Rolison logged onto several times. Accordingly, when Mr. Rolison died in 2015, Procter & Gamble was ready to pay benefits to Ms. Losinger as the named beneficiary. The Estate of Mr. Rolison intervened, believing that Mr. Rolison would never have maintained Ms. Losinger as his beneficiary intentionally. Presented with conflicting claims for the plan funds, Procter & Gamble filed this lawsuit to determine the proper beneficiary entitled to the proceeds. The case has a long and complicated procedural history. The court’s final rulings were made in this decision, in which it entered judgment in favor of Ms. Losinger and Procter & Gamble and denied the Estate’s motion for summary judgment. Oversight or not, Mr. Rolison never changed his beneficiary designation. The court noted that it “already established multiple times that P&G adequately informed Rolison of the status of and how to change his beneficiary designation.” The court found that Procter & Gamble was not in violation of any fiduciary duty and affirmatively and consistently notified Mr. Rolison that his online benefit account lacked a designation of beneficiary and without a new online beneficiary designation his 1987 paper beneficiary designation remained valid. In particular, the court wrote the Estate failed to establish detrimental reliance by Mr. Rolison. “There is no record evidence in this case that supports the Estate’s position that Rolison failed to change his beneficiary status because of any misrepresentation or omission on P&G’s part… Further, the Estate has not come forward with evidence that Rolison’s failure to change his designation beneficiary is attributable to Rolison’s misguided belief that Losinger was not his beneficiary.” Holding that no reasonable fact-finder could conclude that Mr. Rolison detrimentally relied on Procter & Gamble omissions, the court determined there was no breach of fiduciary duty. Therefore, the court granted judgment to Procter & Gamble. Finally, the court granted judgment in favor of Ms. Losinger and against the Estate on the Estate’s claim for a constructive trust. The court agreed with Ms. Losinger that the Estate failed to produce any clear and convincing evidence that Ms. Losinger’s continued designation as beneficiary of the plan was a mistake to justify the imposition of the equitable remedy of a constructive trust. Thus, Ms. Losinger, as named beneficiary, was found to be entitled to the plan funds, and the Estate’s motion for summary judgment was denied. As for the mind of the deceased, that we’ll never know.

Pleading Issues & Procedure

Sixth Circuit

Diederichs v. FCA US, LLC, No. 23-11287, 2024 WL 1957328, 2024 WL 1960617 (E.D. Mich. Apr. 30, 2024) (Magistrate Judge Curtis Ivy, Jr.). Plaintiff Karen Diederichs, as guardian and conservator of her husband, Mark Diederichs, who suffers from early onset Alzheimer’s disease, filed this action against her husband’s former employer, defendant FCA US LLC, asserting claims under Michigan law and ERISA seeking disability benefits. Defendant moved to dismiss. The assigned magistrate judge issued this report and recommendation recommending the motion be granted. First, the magistrate agreed with defendant that its Disability Absence Program was a payroll practice, not an ERISA plan, as it pays disability benefits for a set period out of the company’s general assets. As a result, the magistrate recommended that the ERISA claim for benefits under the program be denied, and stated that to the extent Ms. Diederichs intends to raise a breach of contract claim under the program, that claim too should be dismissed because the Disability Absence Program is not an enforceable contract. The report then progressed to the ERISA claims relating to the long-term disability policy for breach of contract. Once again the judge agreed with defendants, this time because the claims were untimely under ERISA’s statute of limitations for breach of fiduciary duty claims. “The plans disclosed in September 2019 provided the information necessary to alert Plaintiff that she may have been harmed – the documents included the LTD Plan which made clear that exhaustion of the DAP benefits was a prerequisite to LTD benefits, and the documents disclosed the time constraints for filing a claim for DAP benefits. Thus, Defendant contends that this lawsuit should have been filed no later than September 2022, not May 2023.” The magistrate therefore agreed that the breach of fiduciary duty claims should be dismissed as time-barred. Finally, the report recommended dismissing the ERISA claim for benefits for benefits under the long-term disability policy. It stated, “Plaintiff/Mr. Diederichs was not eligible for benefits on the face of the complaint and the documents, so the claim for benefits should be dismissed.” Moreover, the magistrate agreed with defendants that this claim too was untimely, as the plan contains a one-year limitation. “If Plaintiff filed the claim on December 18, 2019, and Defendant failed to respond within 45 days, the denial is deemed to be February 1, 2020. The latest date to bring a claim contesting that denial is February 1, 2021. The May 2023 lawsuit falls outside that time.” Finally, because the report found all the underlying claims should be dismissed, it also recommended dismissing the requests for interest, costs, and attorneys’ fees. For these reasons, the report determined that none of Ms. Diederichs’ claims could go forward and therefore recommended the motion to dismiss be granted. In the second decision issued this week by the magistrate in this case, cited above, the court ruled on Ms. Diederichs’ motion for leave to file an amended complaint. That decision ruled that amendment for all ERISA claims would be futile for the reasons incorporated in the report and recommendation, i.e., that the claims were untimely and not sustainable on the face of the complaint. Further, the magistrate ruled that any state law claims for disability benefits under the long-term disability plan would be preempted by ERISA. Finally, for reasons stated in the magistrate’s report recommending dismissal, he also concluded the Disability Absence Program was not an enforceable contract and no breach of contract claim could survive a motion to dismiss. Thus, Ms. Diederichs’ motion for leave to amend was denied.

Provider Claims

Third Circuit

Abira Med. Labs. v. National Ass’n of Letter Carriers Health Benefit Plan, No. 23-05142 (GC) (DEA), 2024 WL 1928680 (D.N.J. Apr. 30, 2024) (Judge Georgette Castner). A medical testing laboratory business, plaintiff Abira Medical Laboratories, LLC, filed more than 40 cases in both state and federal court suing for reimbursement of laboratory testing, including COVID-19 viral testing. In this particular matter, Abira has sued the National Association of Letter Carriers Health Benefit Plan asserting eight state law causes of action. Defendant moved to dismiss for failure to state a claim. Its motion was granted, without prejudice, by the court in this decision. The court agreed with the plan that the breach of contract and breach of implied covenant of good faith and fair dealing claims were speculative because “Plaintiff has not adequately pleaded the existence of a contract or its breach.” Next, the fraudulent misrepresentation, negligent misrepresentation, promissory estoppel, and equitable estoppel claims premised on the allegation that “Defendants’ representatives communicated to Abira that Defendants would pay Abira for performing subsequent testing services to Defendants’ insureds,” were all dismissed for lacking requisite details about the substance of what promises were made, how, and by whom. The court dismissed the quantum meruit/unjust enrichment claim, concluding plaintiff did not plausibly establish the existence and terms of any plan which would “allow this Court to infer that Defendant unjustly retained a benefit under any plan without payment.” The decision ended with a discussion of the complaints “references to various statutes,” including ERISA, the Families First Coronavirus Response Act, and the CARES Act. Without setting forth a claim under ERISA, the complaint repeatedly references it. The plan argued that even if the complaint actively alleged a claim under ERISA it would fail because the plan is not governed by ERISA, and is instead governed by the Federal Employees Health Benefits Act (FEHBA). The court wrote that even if ERISA were applicable, Abira would still not have plausibly stated a claim because it did not provide information about assignments of benefits necessary to confer derivative standing. As for the CARES Act and the Families First Coronavirus Response Act claims, the court agreed with its sister courts that “neither statue provides a private right of action.” Finally, the court declined to respond to defendant’s argument that FEHBA preempts plaintiff’s state law claims to the extent they seek payment for COVID-19 testing, as the claims were already dismissed and because Abira did not distinguish between claims for COVID testing and other lab work.

University Spine Ctr. v. Cigna Health & Life Ins. Co., No. 23-02912 (SDW)(CLW), 2024 WL 1855066 (D.N.J. Apr. 29, 2024) (Judge Susan D. Wigenton). Plaintiff University Spine Center and two of its surgeons performed spinal surgery on a patient enrolled in a health insurance plan through his employer, L3 Harris, administered by Cigna Health and Life Insurance Company. At the time of the surgery in March 2022, the provider was out-of-network, “thereby making the surgery an out-of-network medical procedure pursuant to the terms of the Plan’s Summary Plan Description (‘SPD’).” Under the terms of the SPD, the maximum reimbursement charge for out-of-network claims is the lowest of either (1) the provider’s normal charge for the service, (2) the amount agreed upon by Cigna and the provider, or (3) a charge representing a percentage of an ordinary payment for the same or similar service in the geographic area. Plaintiff billed Cigna $400,212 for the cost of the surgery. Cigna issued a payment of just $3,400 as reimbursement. University Spine Center believes that the $3,400 payment was not in keeping with the terms of the plan and therefore sued under ERISA Section 502(a)(1)(B) to recover additional reimbursement equaling the difference in the billed and paid amount. L3 Harris and Cigna moved to dismiss for failure to state a claim. They argued that the complaint fails to allege or explain how the reimbursement calculation was incorrect under the terms of the plan or whether the amount the provider is seeking in additional reimbursement is required to be paid pursuant to the SPD. The court agreed with defendants that the complaint did not satisfy Rule 8 pleading and the standards set forth in the Supreme Court’s Twombly and Iqbal decisions. While the court acknowledged that the complaint cites the definition of the maximum reimbursement rates for out-of-network services in the plan, it stated that this alone was “not enough to satisfy the requirements of Rule 8” without additional information. As currently pled, the court understood the complaint to contain “little more than an assertion that Plaintiff is owed more than it was paid for the services it provided and must be dismissed for failure to state a claim under Rule 8.” Accordingly, the motion to dismiss was granted, without prejudice, and University Spine Center has 30 days to file a second amended complaint.

Statutory Penalties

Eleventh Circuit

Griffin v. United HealthCare Servs., No. 23-13429, __ F. App’x __, 2024 WL 1855456 (11th Cir. Apr. 29, 2024) (Before Circuit Judges Pryor, Newsom, and Anderson). A dermatologist proceeding pro se, plaintiff-appellant W.A. Griffin, appealed the district court’s order dismissing her ERISA claims for statutory penalties against United Healthcare Services. The district court concluded that Griffin did not have the right to sue for statutory penalties because the assignment of rights her patients signed did not confer an independent right to Griffin to pursue a Section 502(c)(1) claim for failure to timely furnish documents upon request. In this order, the Eleventh Circuit affirmed. “When scrutinizing such assignments, we have emphasized that the transfer of the general right to recover benefits provided by an ERISA plan does not necessarily transfer the right to pursue non-payment claims, including statutory penalties.” In this particular instance, the appeals court agreed with the lower court that the assignments lacked specific language evidencing the patients’ intent to transfer their right to assign ERISA claims for statutory penalties, and instead contained only general language about the conferral of “rights and benefits” to their provider. In the absence of more specific language in the assignments, the Eleventh Circuit concluded the district court properly held that Griffin lacked standing to bring her statutory penalties claims on behalf of her patients. Accordingly, the court of appeals affirmed the district court’s dismissal.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Breach of Fiduciary Duty

Second Circuit

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

Fourth Circuit

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

D.C. Circuit

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

Class Actions

Eighth Circuit

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

ERISA Preemption

First Circuit

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

Pension Benefit Claims

Eighth Circuit

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

Plan Status

Sixth Circuit

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

Provider Claims

Second Circuit

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

Third Circuit

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

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

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

Retaliation Claims

Fifth Circuit

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

Statute of Limitations

Eleventh Circuit

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Attorneys’ Fees

Second Circuit

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

Breach of Fiduciary Duty

First Circuit

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

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

Ninth Circuit

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

Disability Benefit Claims

Ninth Circuit

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

Life Insurance & AD&D Benefit Claims

Eleventh Circuit

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

Pension Benefit Claims

Fifth Circuit

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

Pleading Issues & Procedure

Eighth Circuit

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

Severance Benefit Claims

Eighth Circuit

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

Withdrawal Liability & Unpaid Contributions

Second Circuit

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