For the second week in a row, no single decision struck us as worthy of the spotlight. Perhaps the courts, like much of the rest of America, were too exhausted by the heatwave to set any precedents or make any rash decisions. Still, ERISA enthusiasts should read on to learn about the use of proprietary investments in retirement plans, “a novel question” about forfeited employer contributions, the discriminatory termination of a CEO with Parkinson’s disease, and whether an underpaid healthcare provider can bring a single lawsuit involving 126 of its patients covered under 72 different health insurance plans relating to 291 different medical claims (spoiler: no).

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

Attorneys’ Fees

Eleventh Circuit

Ferguson v. PNC Fin. Servs. Grp., No. 2:19-cv-01135-MHH, 2024 WL 3015751 (N.D. Ala. Jun. 14, 2024) (Judge Madeline Hughes Haikala). In this decision the court ruled on class counsel’s requested attorneys’ fees of $2,033,332.13, which represented an award of one-third of the $6.1 million settlement fund. The decision began with the court noting that it received no objections to the requested fees and that defendant PNC did not take a position regarding the fee award. Nevertheless, the court stated that the absence of objections did not release it from its duty to assess the reasonableness of the fees or from its obligation to serve as a fiduciary for the class plaintiffs. Therefore, the court evaluated the reasonableness of the requested fee recovery pursuant to Federal Rule of Civil Procedure 23(h). Class counsel asserted that they devoted nearly 6,000 hours working on this action and “that the claims in this case concern complicated ERISA issues.” Moreover, the attorneys attested that they took the case on a contingency basis, and therefore assumed significant risk litigating this matter. Finally, counsel focused on their expertise, knowledge, and “considerable experience handling complex ERISA class litigation.” Factoring all of this in, the court concluded that “30% is a reasonable percentage to apply to the Common Fund to assess Class Counsel’s fee in this case.” Accordingly, the court awarded fees in the amount of $1,830,000.

Breach of Fiduciary Duty

Ninth Circuit

Hutchins v. HP Inc., No. 23-cv-05875-BLF, 2024 WL 3049456 (N.D. Cal. Jun. 17, 2024) (Judge Beth Labson Freeman). Recently, Your ERISA Watch has spotted a new species of cases centering on the use – or is it the misuse? – of forfeited employer contributions. We covered two such cases (Yagy v. Tetra Tech, Inc. and Perez-Cruet v. Qualcomm Inc.) in our June 5, 2024 newsletter. These lawsuits ask “a novel question: Whether and under what circumstances is a plan administrator’s decision to use ‘forfeited’ employer contributions to a retirement plan to reduce employer contributions rather than to pay administrative costs” a violation of ERISA? Here, plaintiff Paul Hutchins, a participant of the HP Inc. 401(k) plan, alleges that defendants HP and the HP Inc. Plan Committee have used forfeited matching contributions solely to reduce the expense of company contributions to the plan. He maintains that this decision is a violation of ERISA. On November 14, 2023, Mr. Hutchins, on behalf of a putative class of plan participants and beneficiaries, commenced this action challenging defendants’ use of the forfeited assets. In his lawsuit Mr. Hutchins asserts six causes of action under ERISA; (1) breach of the fiduciary duty of loyalty; (2) breach of the fiduciary duty of prudence; (3) breach of ERISA’s anti-inurement provision; (4) prohibited transactions with parties in interest; (5) prohibited transactions by the fiduciary dealing in plan assets in its own interest; and (6) failure to monitor fiduciaries. Defendants moved to dismiss the complaint. Their motion was granted, without prejudice, in this order. To begin, the court considered defendants’ argument that settled law expressly allows the use of forfeited employer contributions to reduce future employer contributions. First, the court agreed with Mr. Hutchins that IRS code Section 1.401-7(a) does not apply to defined contribution pension plans under ERISA, “a point that the Treasury Department has made clear in a subsequent revenue ruling.” Second, the court said that a proposed non-binding regulation from the Treasury Department did not foreclose Mr. Hutchins’ theory of liability as a matter of law. Next, the court found that defendants were acting as fiduciaries, rather than settlors, when deciding how to utilize the forfeited funds in the plan. The court understood this to be an implementation decision exercising control over plan assets, rather than a question of plan design, and therefore fiduciary in nature. Mr. Hutchins began running into problems when the court began evaluating his claims. It started with the breach of fiduciary duty claims. The parties agreed that the plan terms allow defendants to reduce employer contributions by using forfeited contributions. However, Mr. Hutchins avers that the use of these funds in this way is a breach under ERISA, meaning the plan terms are themselves in violation of the statute. The court noted that there is no binding authority addressing this theory, and nodded to Perez-Cruet as the only decision addressing a similar theory. To the court, the problem with Mr. Hutchins’ theory of liability was its “broad reach.” As the Supreme Court has stressed, ERISA fiduciary breach actions are “context specific.” Here, the court saw the allegations as “not limited to any particular circumstances that may be present in this case.” The court went on, “As pled, Plaintiff’s theory would require any fiduciary to use forfeited amounts to pay administrative costs regardless of any such context or circumstances. This broad allegation is implausible because it would improperly extend ERISA beyond its bounds and would be contrary to the settled understanding of Congress and the Treasury Department regarding defined contribution plans like the one at issue in this case.” The court noted that such a ruling would require in essence the creation of a benefit, i.e. payment of administrative costs, that the plan does not provide, which is beyond the scope of ERISA and not essential to its goal of protecting benefits. In sum, the court found “it is neither disloyal nor imprudent under ERISA to fail to maximize pecuniary benefits.” In the decision’s next section the court outlined why it does not believe the use of surplus plan assets is a violation of ERISA’s anti-inurement provision. The court did not feel that, even assuming participants in defined contribution plans have a right to contributions, they also have a right to forfeited amounts from the accounts of other participants. Thus, the court broadly rejected the idea that the forfeited contributions were plan assets to which “any participant is entitled.” Importantly, Mr. Hutchins did not allege that HP failed to meet its obligations to provide matching contributions to the plan. Therefore, the court found it implausible that the forfeited amounts inured to the benefit of HP. The court also dismissed the prohibited transaction claim because the Supreme Court has held that the payment of benefits is not a transaction under the prohibited transaction provision. Finally, the court dismissed the derivative duty to monitor claim. However, because of the novel nature of this action, the court stated that amendment may not be futile, and therefore granted Mr. Hutchinson leave to amend his complaint to address the deficiencies it identified in this order.

Mattson v. Milliman Inc., No. C22-0037 TSZ, 2024 WL 3024875 (W.D. Wash. Jun. 17, 2024) (Judge Thomas S. Zilly). Plaintiff Joanna Mattson, individually and on behalf of a class of participants of the Milliman, Inc. Profit Sharing and Retirement Plan, alleges that Milliman, Inc., its board of directors, and the plan’s committee breached their duties of prudence, loyalty, and monitoring under ERISA by including three proprietary funds in the plan: the Unified Trust Wealth Preservation Strategy Target Growth Fund, the Unified Trust Wealth Preservation Strategy Target Moderate Fund, and the Unified Trust Wealth Preservation Strategy Target Conservative Fund. The court held a bench trial in April, and in this order it entered its findings of fact and conclusions of law. The Wealth Preservation Strategy (WPS) Funds “are a suite of investment funds that seek to preserve capital and guarantee investors specified levels of risk through the application of a hedging strategy known as the Milliman Managed Risk Strategy.” The WPS Funds began underperforming in the fourth quarter of 2014, when the markets experienced a quick downturn, followed precipitously by an upturn (referred to as a “v-shaped market”). The v-shaped market caused things to go pear-shaped. The funds’ proprietary hedging strategies lagged behind the market recovery, meaning the WPS Funds stayed at the bottom of the v longer than their peers. While the markets were rebounding quickly, the WPS Funds had lower net equity positions because it took time for their hedging strategies to be removed. They therefore experienced “less upside capture.” This was particularly true of the growth fund. It was affected more by the recovery lag than moderate and conservative funds “because its equity allocation is higher.” And at that time, the growth fund was the default investment option in the plan. Thanks to the underperformance of the funds, which would continue for the next five years, the committee placed the funds on a watchlist and, after some time, changed the plan’s default investment option. The WPS Funds, however, were never removed from the plan, although they were eventually removed from the watchlist. Importantly, not only were the WPS Funds proprietary Milliman offerings, but both the trustee and the fund advisor were wholly-owned subsidiaries of Milliman. Ms. Mattson’s expert estimated that retaining the funds in the plan caused losses of over $54 million throughout the class period. Ultimately, the court disagreed. It concluded “the record simply does not support Mattson’s contention that the WPS Funds caused the Plan to suffer losses.” For a number of reasons, the court found that Ms. Mattson failed to establish either a procedural or substantive breach of the duty of prudence as “she has not shown that Milliman’s processes were unreasonable or that the WPS Funds were imprudent investments.” Ms. Mattson argued that the board did not engage in a prudent process to oversee and monitor the funds because it chose to delegate monitoring responsibilities to the committee while retaining for itself decision-making authority for the plan. But the court saw the advantages to the separation of responsibilities between the board and the committee. It wrote that defendants’ chosen structuring of assignments “enabled a group dedicated to monitoring tasks, i.e., the Committee, to engage in more careful, detailed, and frequent analyses than was possible for the Board.” Further still, the court noted that limiting the committee’s power afforded checks and balances “lest the Committee…have too myopic a view.” Therefore, the court held that this division of labor between the committee and board was consistent with, if not above and beyond, industry standards, and thus concluded that “the hallmarks of procedural prudence are present.” Additionally, the court was satisfied that a hypothetical prudent fiduciary would have reached the same decisions to retain the WPS Funds despite their five-year underperformance because that decision was “consistent with their long-term investment strategies designed to limit volatility and provide protection against losses in down markets.” As the court noted, “amidst the market downturns in 2020 and 2022, the WPS Funds have proven that they serve the purposes for which they were added to the Plan, protecting investors from experiencing large losses during periods of high volatility, while outpacing or closely tracking the performance of peer group funds.” Accordingly, the court concluded that Ms. Mattson failed to prove that retaining the funds was imprudent. Turning to the claims of disloyalty, the court found that Ms. Mattson could not establish that “Milliman acted with anything other than the best interests of Plan participants in mind.” It highlighted defendants’ choice to waive fees for the WPS Funds, the steps defendants took to mitigate conflicts, and the fact that the committee “did not hesitate” to designate a new investment option as the plan’s qualified default investment but did hesitate to remove the WPS Funds from the watchlist. Taken together, the court found these facts dispositive. Finally, because the court determined that Ms. Mattson failed to show any imprudence or disloyalty, it concluded that her derivative failure to monitor claim likewise failed. Thus, Ms. Mattson was unsuccessful and judgment was entered in favor of defendants on all claims.

Discovery

Sixth Circuit

First v. J&C Ambulance Servs., No. Civil Action 2:22-cv-3296, 2024 WL 3082640 (S.D. Ohio Jun. 21, 2024) (Magistrate Judge Kimberly A. Jolson). This is a Consolidated Omnibus Budget Reconciliation Act (COBRA) case revolving around a gap in the plaintiffs’ health insurance coverage. The plaintiffs bring claims under ERISA, FMLA, and Ohio disability discrimination law. At issue here was a discovery dispute between the parties. Specifically, defendant J&C Ambulance Services, Inc. moved to compel full and complete discovery responses and to compel plaintiffs to provide signed authorizations for the release of medical and billing records, as well as records related to any workers’ compensation claims. Although the plaintiffs acknowledge that much of the information J&C seeks is discoverable, they broadly opposed signing the releases and authorization forms, and argued that being compelled to provide signed authorizations is not required by the Federal Rules of Civil Procedure. The court began its discussion with the relevance of the records J&C sought. It went through each topic of documents – medical records, billing information, insurance records, and workers’ compensation records – and found the requests sufficiently narrow and the records relevant and discoverable under Rule 26. However, on certain matters the court was unclear whether plaintiffs had already produced all of the relevant documents and therefore instructed the parties to meet and confer on these issues. The court then addressed plaintiffs’ argument against the signed authorizations themselves. It noted that although plaintiffs are correct that the Federal Rules of Civil Procedure do not specifically authorize such relief, it stated that just because Rule 34 does not mandate releases does not preclude them altogether. Indeed, in some cases, this one included, the court viewed the use of releases to obtain medical records directly from healthcare providers to be “the most efficient and economical way…to obtain those records.” The court viewed plaintiffs’ proposed six-step solution as impractical and overly time consuming, particularly in light of the fact that they have failed to produce the records to date and the case has been pending for almost two years already. “It is clear the parties cannot make progress until J&C is in possession of the discoverable records. An efficient and economical solution is necessary and urgent at this point.” Accordingly, the court granted defendant’s motion to compel plaintiffs to sign the authorization forms. Nevertheless, the court was open to putting certain guardrails in place to protect the plaintiffs. It ordered the parties to discuss conditions such as defendants giving plaintiffs notice when they use the authorizations, producing copies of every document and record they receive from the healthcare providers, and certifying they are not withholding any documents received by the use of the authorizations.

Life Insurance & AD&D Benefit Claims

Second Circuit

Kyi v. 4C Food Corp., No. 22-CV-6301 (PKC) (LB), 2024 WL 3028954 (E.D.N.Y. Jun. 17, 2024) (Judge Pamela K. Chen). This case presents a series of very unfortunate circumstances beginning in 2019 when decedent Tun Win was diagnosed with severe early onset dementia and major neurocognitive disorder at just 51 years old. His wife, plaintiff Khin San Kyi, is a Burmese immigrant with limited English proficiency. In the midst of dealing with this terrible illness, Mr. Win requested Family and Medical Leave Act (FMLA) leave with his employer, 4C Foods Corp. 4C approved the FMLA leave. While Mr. Win while still on FMLA leave, his employer wrongly informed the Teamsters Local 277 Welfare Fund that Mr. Win “recently resigned.” Things went from bad to worse when the Fund sent a letter to the family informing Mr. Win that his employee benefits were cancelled and that he had 60 days to convert his group life insurance policy to an individual policy. This letter was mailed to an old address. Mr. Win and Ms. Kyi never received it. Ms. Kyi learned in the coming months that her husband’s illness was terminal. She then attempted to communicate with the Fund to inquire about Mr. Win’s benefits, but the Fund could not provide her with an interpreter who spoke her language. Months later, Ms. Kyi found a social worker who could translate for her and at this time she finally learned that Mr. Win’s benefits under the Fund had already been terminated months before. In response, Ms. Kyi hired an attorney to assist her in retaining life insurance coverage through the Fund in accordance with a waiver of premium total disability benefits. These benefits were denied because they required continuous disability benefits for nine months, and Mr. Win’s benefits had been cancelled before he had been totally disabled for nine continuous months. In April 2020 Mr. Win died. Ms. Kyi applied for life insurance benefits, but her claim was denied. She completed the administrative appeals process before bringing this pro se action on October 14, 2022 against 4C Foods, the Fund, and Amalgamated Life Insurance Company alleging claims for wrongful denial of benefits and breach of fiduciary duty under ERISA, promissory estoppel, interference with FMLA rights, and breach of contract. Defendants moved to dismiss. First, the Fund moved to dismiss for lack of subject matter jurisdiction. It argued that Ms. Kyi lacked Article III standing to sustain her claims. The court disagreed in part: “Though the Welfare Fund was not the entity responsible for paying out death benefits pursuant to the Policy, the Welfare Fund’s actions were fairly traceable to Plaintiff’s injury.” However, the court ultimately agreed with the Fund that Ms. Kyi did not have standing to bring claims against it because it cannot redress her injury due to insolvency. “As the Complaint itself alleges, due to ‘serious cashflow problems,’ the Welfare Fund ceased providing benefits as of June 2019. And on December 31, 2021, the Welfare Fund and the trust agreement that initially created it were both fully and finally dissolved.” Accordingly, the court recognized that the Fund has no money to pay a judgment even if the court issued one. Thus, the court concluded Ms. Kyi’s injuries could not be redressed by a favorable decision. As a result, all claims against the Fund were dismissed. This meant that Ms. Kyi’s benefits claim and her breach of fiduciary duty claim under ERISA were both dismissed, as they were only asserted against the Fund. The promissory estoppel claim asserted against the insurance company was also dismissed because the complaint did not allege that the insurer ever made any promise or engaged in any intentional inducement or deception. The FMLA interference claims were dismissed as well because Mr. Win received the maximum twelve weeks of leave allowed. Finally, the breach of contract claim was found to be preempted by ERISA. Accordingly, the court dismissed the entirety of Ms. Kyi’s action.

Medical Benefit Claims

Second Circuit

Kwasnik v. Oxford Health Ins., No. 22-CV-4767 (VEC), 2024 WL 3027924 (S.D.N.Y. Jun. 17, 2024) (Judge Valerie Caproni). In 2017, when she was 37 years old, plaintiff Fiana Kwasnik froze her eggs. She paid for the procedure herself. Years later, in 2021, Ms. Kwasnik wanted to get pregnant. At this time, she was a participant in an ERISA-governed healthcare plan insured by defendant Oxford Health Insurance, Inc. Ms. Kwasnik sought coverage for three procedures: (1) retrieval of more eggs (2021 retrieval); (2) fertilization of both oocytes that had been retrieved in 2017 and in 2021 through a process called intracytoplasmic sperm injection (ICSI); and (3) genetic testing on any resulting embryos. The plan expressly provides coverage for three cycles per lifetime of in vitro fertilization (IVF) and embryo storage for the treatment of infertility. In addition, New York law mandates that health insurance plans cover three rounds of IVF. Ms. Kwasnik’s claims for all three services were denied by Oxford. Oxford determined that none were medically necessary under the terms of the plan. It concluded that a new round of egg retrieval was not medically necessary at that time because Ms. Kwasnik had viable eggs from 2017. The denial specified that Ms. Kwasnik could undergo new egg retrievals (a maximum of three) if she could not successfully become pregnant from implantation of the 2017 eggs. In addition, the plan denied coverage for the ICSI method of implantation of the 2017 embryos and the genetic testing of the embryos because neither Ms. Kwasnik nor her partner had a genetic condition or abnormal genes. Ms. Kwasnik challenged the denial of benefits for her fertility treatments in this action. The parties filed cross-motions on the one remaining cause of action under Section 502(a)(1)(B). In this decision the court granted judgment to Oxford under arbitrary and capricious review. At the outset, the court disagreed with Ms. Kwasnik that the denial of her claims should be reviewed de novo because Oxford violated the Department of Labor’s claims procedures. First, the court stated that Ms. Kwasnik did not include the letter she claims she sent Oxford requesting documents in the administrative record. “Because there is no evidence in the record that Plaintiff ever requested her claim file, Plaintiff has not made an initial showing that Oxford violated this regulation.” Second, the court concluded that Ms. Kwasnik’s assertions that Oxford failed to consider information she submitted in support of her appeal, and that it retained the same doctors to review the appeal as those who denied the claim, were factually inaccurate. For these reasons, the court reviewed the denials under the abuse of discretion standard in light of the grant of discretionary authority. Under the highly deferential review standard, the court could not say that the denials were an abuse of discretion. It found that the plan was not violating ERISA’s or New York’s mandates by denying coverage of a fresh egg retrieval while viable eggs existed from the 2017 retrieval. In addition, the court agreed with Oxford that substantial evidence supported its medical necessity conclusions with regard to the ICSI implantation and genetic testing of the embryos. Accordingly, the court upheld the denials and granted judgment in favor of Oxford.

Pension Benefit Claims

Second Circuit

Purcell v. Scient Fed. Credit Union, No. 3:22-CV-961 (VDO), 2024 WL 3059640 (D. Conn. Jun. 20, 2024) (Judge Vernon D. Oliver). Plaintiff David Purcell was the Chief Executive Officer of Scient Federal Credit Union (SFCU) from June 2015 to March 2020. Because of his employment and position, Mr. Purcell participated in a “split dollar” retirement plan. Mr. Purcell was the sole participant in the plan, and SFCU’s board of directors was the plan’s designated administrator and fiduciary. How the plan works is a bit complicated. SFCU took out a life insurance policy on Mr. Purcell and paid premiums on the policy. SFCU will be paid back out of the death benefit for the premiums it paid plus interest when the proceeds are eventually paid. Mr. Purcell is entitled to borrow under the plan upon reaching retirement age or, as relevant here, in the event Purcell is terminated due to a disability. The plan defines disability as the Social Security Administration determining that Mr. Purcell is totally disabled. Finally, the plan outlines its vesting schedule and the dates the benefits vest, increasing in 33% intervals from 0-100%. In 2017, Mr. Purcell disclosed to the company that he had been diagnosed with Parkinson’s disease. Over the next three years his disease progressed with “increasing expression of the symptoms,” evident to those around him. SFCU began looking for a successor CEO while Mr. Purcell’s disorder progressed. On March 16, 2020, SFCU terminated Mr. Purcell, stating, “We are going in a different direction.” Mr. Purcell applied for benefits under the plan. He maintained that he is entitled to 100% of vested benefits, as he was fired as a result of his disability. SFCU denied the claim, asserting that Mr. Purcell was only vested in one-third of the annual borrowing cap. Notably, SFCU’s termination occurred shortly before Mr. Purcell’s vesting, regardless of disability, was scheduled to rise from 33% to 67%. Mr. Purcell received a diagnosis of total disability from the Social Security Administration, and with the help of his attorney, appealed the adverse benefit determination. Although it had ample opportunity to do so, SFCU did not respond to Mr. Purcell’s notice of claim by the due date. In this action, Mr. Purcell seeks a court order overturning SFCU’s decision. He asserted claims under Sections 502(a)(1)(B) and (a)(3). On July 21, 2023, Mr. Purcell moved for summary judgment on his benefits claim. His motion was granted in this order. Before doing anything else, the court decided that de novo review was applicable. It stated that the plan did not clearly grant discretionary authority and defendants failed to comply with the Department of Labor’s claims procedure regulations. The court then found that the administrative record showed that Mr. Purcell’s employment was terminated because of his disability. Under the McDonnell Douglas burden-shifting framework, the court was satisfied that Mr. Purcell established a prima facie case of unlawful termination. The court held that Mr. Purcell had a disability as defined by the plan, that he was qualified for his position, and that the sequence of events leading up to and the timing of Mr. Purcell’s termination gave rise to an inference of discrimination. In light of the fact that Mr. Purcell was terminated while his disease was progressing, and given the timing of the termination just months before benefits would have vested, resulting in substantial cost savings for the company, the court was satisfied that Mr. Purcell showed discriminatory intent. Further, the court held that SFCU failed to produce any admissible evidence to articulate a legitimate non-discriminatory explanation for the decision to terminate Mr. Purcell. Thus, the court said, “there is no basis in the administrative record for a factfinder to conclude that there was any other reason for the termination.” Accordingly, the court granted Mr. Purcell judgment in his favor, and as a result, the denial of his benefit claim was vacated and Mr. Purcell was awarded benefits, plus prejudgment interest.

Pleading Issues & Procedure

Third Circuit

Carr v. Abington Mem’l Hosp., No. Civil Action 23-1822, 2024 WL 3032893 (E.D. Pa. Jun. 17, 2024) (Judge Harvey Bartle III). Plaintiff Alice Carr filed this action alleging she is due pension benefits under the Thomas Jefferson University Defined Benefit Plan pursuant to Section 502(a)(1)(B), and that Thomas Jefferson University, as administrator of the plan, withheld documents from her in violation of Section 502(c)(1). Thomas Jefferson did not file an answer to Ms. Carr’s complaint until five-and-a-half months after it was due under the court’s scheduling order. Given this delay, Ms. Carr moved to strike Thomas Jefferson’s untimely answer to her complaint. In this decision the court denied her motion. It concluded that the tardiness in filing was the result of excusable neglect. “Defendants’ untimely filing, as candidly stated by their attorney, was a result of his honest oversight. At the time the answer was due, he was out of the office because he was recovering from COVID-19. When he returned to the office, he neglected to follow up. There was certainly no bad faith.” Moreover, the court found that Ms. Carr was not prejudiced by the delay, that the delay had little judicial impact, and no costs were incurred as a result of it. Based on the foregoing, the court did not feel it was right to grant the motion to strike defendants’ untimely answer to the complaint.

Tenth Circuit

Finley v. Reliance Standard Life Ins. Co., No. CIV-23-967-PRW, 2024 WL 3013841 (W.D. Okla. Jun. 14, 2024) (Judge Patrick R. Wyrick). In 2007, plaintiff Jill Finley suffered a hypoxic brain injury and was in a coma for several weeks. Miraculously, Ms. Finley regained consciousness, but the brain injury caused lasting and likely permanent effects. As a result, Ms. Finley has been receiving long-term disability benefits ever since under a policy provided by Reliance Standard Life Insurance Company. This action arises from events that occurred in 2022 and 2023. First, on April 14, 2022 Reliance Standard terminated Ms. Finley’ benefits. In response, Ms. Finley hired the law firm of Durbin, Larimore & Bialick to assist her in overturning this decision. The law firm did just that. In January 2023, Reliance reversed its decision and reinstated Ms. Finley’s benefits. Counsel requested that Reliance pay attorneys’ fees and costs associated with preparing and filing a request for review of the termination decision. Reliance declined to do so. Then in April 2023, Ms. Finley filed a request for financial hardship relief under the plan, requesting reimbursement of deductions made by Reliance Standard based on her receipt of Social Security disability benefits. Reliance denied that request as well, prompting this action wherein Ms. Finley alleged claims under ERISA Sections 502(a)(1)(B) and (a)(3) stemming from the harm of Reliance’s refusal to pay attorneys’ fees and its deductions of Social Security disability benefits from her monthly long-term disability payments. Reliance moved to dismiss for failure to state a claim. Its motion was granted and the action was dismissed with prejudice. First, the court concluded that Ms. Finley’s request for attorneys’ fees relating to pre-litigation administrative appeals proceedings “are not compensable under ERISA, even in the form of an equitable surcharge.” The court emphasized that Section 1132(g) omits any reference to fees incurred during administrative proceedings, and stated that “legislative choice must be given effect.” Therefore, the court held that Ms. Finley could not state a claim for relief under either Section 502(a)(1)(B) or (a)(3) for attorneys’ fees and costs associated with pre-litigation work. Next, the court concluded that Ms. Finley could not sustain her claims based on the deductions because Reliance’s deduction of Social Security disability benefits from Ms. Finley’s monthly long-term disability payments “was and is in accord with the terms of the benefit plan, not a breach of fiduciary duty.” Therefore, the court agreed with Reliance that Ms. Finley failed to plausibly plead a claim relating to the benefit deductions. Finally, the court dismissed claims based on Reliance’s failure to provide requested documents in the course of the administrative appeal because “no concrete harms result[ed] from these alleged breaches.” The action was therefore dismissed, and because the court concluded that amendment would be futile, dismissal was with prejudice.

Provider Claims

Second Circuit

Gordon Surgical Grp. v. Empire Healthchoice HMO, Inc., No. 1:21-cv-4796-GHW, 2024 WL 3012637 (S.D.N.Y. Jun. 12, 2024) (Judge Gregory H. Woods). The plaintiffs in this action are three small affiliated surgery practices which provided healthcare services to 126 patients covered under 72 different health insurance plans insured by defendant Empire Healthchoice HMO, Inc. In their lawsuit, the providers allege federal and state law causes of action, including claims under ERISA, seeking over $1 million in reimbursement of charges for 291 medical claims. The imbalance between the parties is striking. The plaintiff providers are now out of active practice, “in part, due to Empire’s failure to make payment for their services,” while Empire is “a multi-billion dollar company.” The surgery practices argued that Empire’s denials and nonpayment for claims were done broadly and commonly, and that many of the plans at issue “include substantially similar or identical boilerplate provisions utilized by Empire nationwide.” They therefore contend that their claims are properly joined together into this single action. However, as our readers likely know, ERISA was not designed with healthcare providers in mind, and it has therefore never functioned particularly well for them. It is unsurprising then that the plaintiffs here have faced difficulties in proceeding with their action. Their case was dismissed previously by the court without prejudice. When the court granted plaintiffs’ motion for leave to amend, it was concerned that plaintiffs’ claims had been improperly joined into a single action. Therefore, the court issued an order to show cause why it “should not dismiss all claims except those by a single plaintiff involving one singular ERISA healthcare plan, without prejudice to refiling each of Plaintiffs’ claims involving different health insurance plans in separate civil actions.” Plaintiffs responded and argued why they believed misjoinder of parties did not apply and why filing new lawsuits would frustrate them and not promote judicial economy. The matter was assigned to a magistrate judge who issued a report and recommendation recommending plaintiffs be permitted to replead and include claims with common plan terms and overlapping witnesses. Empire objected to the magistrate’s report and proposed narrowing it further to apply only to plans of the same employer/plan sponsor issued the same year. In this decision the court agreed with Empire and narrowed the subset accordingly. It concluded that permitting joinder of only claims involving one singular ERISA healthcare plan in a singular year “will better serve the interests of judicial economy, as well as ensuring that the surviving claims are logically related – involving the same transaction or occurrence, or common questions of law or fact.” The court acknowledged the burden its decision will place on the plaintiffs, including the fact it will force them to file nearly 50 different lawsuits, but nevertheless stressed that civil litigants are not permitted “to glom together numerous disparate claims just because it saves them money. The Federal Rules of Civil Procedure apply notwithstanding any party’s financial means.” While the court noted that it viewed the magistrate’s proposal as thoughtful, considered, and well-reasoned, it nevertheless agreed with Empire that the report rested on a faulty assumption that “the plan terms would remain the same from year to year.” The court further feared that adopting the magistrate’s proposed approach would prolong litigation and determined that narrowing the scope of the joined claims further would permit it to adequately examine questions of exhaustion, standing, and timeliness. Thus, the court concluded that plaintiffs could not consolidate their 291 claims into a single federal action and stated that any fallout from the ruling is fundamentally a result of their own “strategic decision to improperly join disparate claims – not the fact that their effort was uncovered.”

Ninth Circuit

The Discovery House LLC v. Cigna Corp., No. 2:22-CV-1418-DOC-JDE, 2024 WL 3086554 (C.D. Cal. Jun. 12, 2024) (Judge David O. Carter). Four out-of-network substance use disorder treatment providers and clinical laboratories bring this action against Multiplan Inc., Viant, Inc., Cigna Corporation, Cigna Health and Life Insurance Company, Connecticut General Life Insurance Company, Cigna Behavioral Health, Inc., and Cigna Health Management, Inc. for failure to fully reimburse claims for healthcare treatment. In the operative complaint plaintiffs assert seven causes of action; (1) claims for plan benefits under ERISA Section 502(a)(1)(B); (2) breach of written contract; (3) breach of implied covenant of good faith and fair dealing; (4) breach of implied contract; (5) breach of oral contract; (6) promissory estoppel; and (7) unfair competition. Defendants moved to dismiss. Their motion was granted in part and denied in part in this order. The court began with the ERISA benefit claims. It held that plaintiffs have standing as assignees of their patients, that Multiplan is a proper ERISA defendant because plaintiffs alleged that it was exercising fiduciary authority over benefit determinations, that plaintiffs properly alleged breach of plan terms and that they were underpaid benefits owed under the plan, and that exhaustion would be futile. The court therefore entirely denied the motion to dismiss the ERISA claims. Next, the court concluded that plaintiffs plausibly alleged their breach of express written contract claim. It stated the complaint plausibly alleges that a contract existed, the providers performed and honored the terms of the contract, the defendants breached the contract by not paying according to the promised rates, and that the providers suffered a loss as a result of the alleged breach. However, the court dismissed the claims for breach of the implied covenant of good faith and fair dealing, breach of implied contract, and breach of oral contract, finding them redundant of, and overlapping, the breach of contract claim. As for the promissory estoppel claim, the court found that plaintiffs adequately alleged a clear and unambiguous promise and assurance that defendants would pay. Therefore, the court denied the motion to dismiss the promissory estoppel claim. Plaintiffs’ last claim for violation of California’s Unfair Competition Law was dismissed, however, as the court determined that the equitable relief plaintiff sought is “secured through [their] other causes of action.” Finally, to the extent plaintiffs’ state law claims relate to health insurance plans governed by ERISA, the court noted plainly that they are preempted by ERISA and thus dismissed them with prejudice.

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

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

Breach of Fiduciary Duty

Seventh Circuit

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

Class Actions

Eleventh Circuit

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

Disability Benefit Claims

First Circuit

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

Ninth Circuit

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

ERISA Preemption

Third Circuit

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

Sixth Circuit

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

Ninth Circuit

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

Exhaustion of Administrative Remedies

Second Circuit

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

Medical Benefit Claims

Ninth Circuit

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

Pleading Issues & Procedure

Third Circuit

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

Ninth Circuit

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

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

Tenth Circuit

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

Severance Benefit Claims

Fifth Circuit

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

Statutory Penalties

Ninth Circuit

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Breach of Fiduciary Duty

Eighth Circuit

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

Ninth Circuit

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

ERISA Preemption

Second Circuit

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

Eighth Circuit

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

Medical Benefit Claims

Ninth Circuit

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

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

Pleading Issues & Procedure

Second Circuit

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

Remedies

Sixth Circuit

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

Withdrawal Liability & Unpaid Contributions

Sixth Circuit

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