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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Arbitration

Ninth Circuit

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

Breach of Fiduciary Duty

Ninth Circuit

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

Class Actions

Third Circuit

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

Fourth Circuit

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

Exhaustion of Administrative Remedies

Fifth Circuit

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

Life Insurance & AD&D Benefit Claims

Fifth Circuit

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

Pension Benefit Claims

Third Circuit

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

Pleading Issues & Procedure

Ninth Circuit

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

Provider Claims

Third Circuit

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

Fifth Circuit

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

Severance Benefit Claims

Second Circuit

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

Subrogation/Reimbursement Claims

Ninth Circuit

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

The Trustees of the N.Y. St. Nurses Ass’n Pension Plan v. White Oak Glob. Advisors, LLC, No. 22-1783, __ F.4th __, 2024 WL 2280632 (2d Cir. May 21, 2024) (Before Circuit Judges Lynch and Park, and District Judge Jessica G.L. Clarke)

Arbitration has been a hot topic in ERISA litigation lately. Just three weeks ago we covered the decision in Cedeno v. Sasson, in which the Second Circuit used the “effective vindication” doctrine to void an arbitration provision in a case asserting claims under ERISA Section 502(a)(2). As we discussed, the Third, Seventh, and Tenth Circuits have also invalidated similar arbitration provisions based on that doctrine.

However, these rulings all focused on whether a case can be forced into arbitration at the outset. What about cases that have already been through arbitration? What power do federal courts have over petitions regarding the decisions made there?

This question is tricky because the Federal Arbitration Act, although it expansively regulates the arbitration process, does not by itself confer subject matter jurisdiction on the federal courts. As a result, up until recently, most courts, including the Second Circuit, have used a “look-through” approach to determine whether they have jurisdiction over post-arbitration disputes.

Under this approach, the court examines an arbitration award to see if it resolves federal claims, and if it does, the court can exercise federal question jurisdiction over a petition regarding that award. This approach had the benefit of being the same one used to determine whether arbitration can be compelled in the first place, thus creating a “consistent jurisdictional principle.”

However, the Supreme Court upended this approach two years ago in Badgerow v. Walters. In Badgerow, the court rejected the “look-through” approach and ruled that federal jurisdiction exists over a post-arbitration petition only if the “face of the application” shows that federal law entitles the applicant to relief. The practical effect of this ruling is that many post-arbitration petitions must now be adjudicated in state court.

But what does this mean for ERISA cases? The Second Circuit addressed this question in this week’s notable decision. Plaintiff, Trustees of New York State Nurses Association Pension Plan, filed a demand for arbitration after it became concerned that defendant White Oak Global Advisors, LLC, which served as the investment manager for the Plan, had breached its fiduciary duties to the Plan and was violating the investment management agreement (“IMA”) between it and the Plan.

After a week-long hearing, the arbitrator largely found in the Trustees’ favor, and the Trustees filed a petition to confirm the award in federal court. White Oak cross-petitioned to vacate the award in part, but did not raise any jurisdictional issues. The district court modified the award slightly but otherwise granted the Trustees’ petition. The court also awarded the Trustees attorney’s fees pursuant to its inherent authority based on White Oak’s “meritless, ‘entirely unpersuasive,’ and even ‘borderline sanctionable’ positions throughout this litigation.”

After judgment was entered, the Supreme Court issued its ruling in Badgerow. Relying on Badgerow, White Oak filed a motion to vacate the judgment, contending that the district court lacked jurisdiction to confirm the arbitration award. The court rejected this argument and White Oak appealed.

On appeal, the Second Circuit acknowledged that the legal landscape had shifted because of Badgerow, and that the district court’s original basis for jurisdiction – that the underlying ERISA claims were federal in nature – was no longer valid.

However, this was not the death-knell for jurisdiction. The Second Circuit interpreted Badgerow to mean that “subject matter jurisdiction over a petition to confirm an award turns on the law governing the contractual rights created by the arbitration agreement, rather than the laws asserted in the underlying claims or the non-existent ‘freestanding’ rights created solely by the award.” Because contracts are typically governed by state law, this means that post-arbitration petitions should generally end up in state court.

However, as the Second Circuit explained, ERISA is different. The court noted that “the arbitration agreement that the Trustees seek to enforce is not some separate instrument governed by an entirely different body of state contract law, but rather is an integral part of the documents governing the Plan and is governed by ERISA.” Furthermore, “ERISA imposed a fiduciary obligation upon White Oak to comply with the IMA’s arbitration terms and the FAA review for which it provided.”

The Second Circuit also observed that ERISA has an expansive preemption clause and thus it “preempts state law as to the enforcement of arbitration agreements between core ERISA entities contained within plan documents or terms.” The court acknowledged that this “express preemption” does not by itself grant federal jurisdiction. In order “for jurisdiction to be proper, the petition to confirm must state a cause of action contained within ERISA or another federal statute.”

The Second Circuit found such a cause of action in ERISA Section 502(a)(3), which allows for equitable relief. The court noted that the Trustees’ petition sought “‘disgorgement’ of management fees, return of the Plan’s assets held by White Oak, and ‘[r]emoval of White Oak as the plan’s fiduciary and investment manager.’” The court held that these were classic equitable remedies, even if some of the relief sought was monetary in nature. The court further held that even if the central dispute concerned an arbitration agreement, it was effectively a suit to enforce an ERISA-governed trust, and such suits have always been equitable in nature, especially where “the Trustee’s petition seeks enforcement of an arbitral award that itself grants equitable relief.”

Moreover, even if the Trustees had “styled their petition as a contract action controlled by state law,” it could not evade federal jurisdiction because of ERISA’s “complete preemption” doctrine. The Trustees’ petition “easily satisfied” the Davila complete preemption test because “[t]he Trustees are a party authorized to sue under § 502(a)(3), and the petition to enforce the arbitration agreement, through confirmation of the award, is an action to enforce a plan term or document.” In short, because the Trustees’ petition “is cognizable as an ERISA § 502(a)(3) action,” state law could not apply and federal question jurisdiction was inescapable.

As a result, the Second Circuit determined that the rule announced by the Supreme Court in Badgerow did not divest it of jurisdiction over the matter, and it turned to the merits. White Oak did not challenge the arbitrator’s underlying factual findings or legal conclusions. Instead, it argued that the district court “exceeded its confirmation authority by entering judgment in favor of the Trustees on (1) prejudgment interest on the disgorgement of its assets, (2) the return of the ‘Day One fees,’ and (3) ‘profits.’”

The court affirmed the ruling that the Trustees were entitled to prejudgment interest on the disgorgement of assets, finding that the arbitrator’s final award was unambiguous on this issue and the intent of the arbitrator was clear. The court further affirmed the ruling that such interest began accruing as of the date the IMA expired.

The court also affirmed the district court’s ruling that White Oak was required to disgorge its “Day One fees.” These were retroactive fees White Oak imposed when the Plan joined White Oak’s investment fund, and which the arbitrator concluded were not permitted by the IMA. The Second Circuit ruled that the arbitrator’s award clearly required White Oak to return these fees and the district court did not err by enforcing it.

However, White Oak prevailed on its third issue regarding the disgorgement of “profits.” The Second Circuit agreed that “the Award’s failure to identify or calculate ‘profits’ renders this item of relief sufficiently ambiguous that we cannot discern how to enforce it. Accordingly, the Award must be remanded to the arbitrator for clarification.” The court ruled that the calculations involved were not “ministerial” and involved “numerous legal and factual questions” that the court could not resolve without further guidance.

Finally, the court agreed with White Oak that the district court’s award of attorney’s fees to the Trustees, which was based on White Oak’s litigation conduct, should be reversed. The Second Circuit ruled that the district court’s findings supporting that award lacked sufficient detail, and thus remanded for the court to “make more specific findings.”

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

Breach of Fiduciary Duty

Sixth Circuit

Moore v. Humana Inc., No. 3:21-cv-232-RGJ, 2024 WL 2402118 (W.D. Ky. May. 23, 2024) (Judge Rebecca Grady Jennings). In this class action participants of the Humana Retirement Savings Plan allege Humana Inc. and the Humana Retirement Plans Committee breached their duties under ERISA by failing to leverage plan assets and participant size to ensure that recordkeeping fees paid were prudent and reasonable. During a relatively short period of time –just seven years – the Plan grew tremendously. Its assets nearly doubled from $3.5 billion to roughly $6.5 billion and the number of participants increased by nearly 10,000 individuals. However, the yearly participant fee paid for recordkeeping services decreased in that same time period only minimally, from $37 per participant down to $28. Plaintiffs aver that $9 was not appropriate given the plan’s growth, and that a reasonable per-participant recordkeeping fee range is between $12 to $20 for a plan of this size. Defendants do not dispute that they never attempted to negotiate with their recordkeeper, Charles Schwab, for lower fees during this period as plaintiffs allege they should have. However, defendants contend that they nevertheless engaged in a prudent process by conducting a request for proposal wherein they considered more than 125 vendors, and by retaining a third-party consultant to perform annual benchmarking for the plan. Moreover, defendants argue that the fees themselves were reasonable throughout the class period. The parties each moved to exclude the other’s expert’s testimony, and also cross-moved for summary judgment. The court in this decision granted defendants’ motion to exclude as well as their motion for summary judgment, and denied plaintiffs’ motion to exclude and their summary judgment motion. The decision began with plaintiffs’ motion to exclude defendants’ expert, Pete Swisher. Somewhat surprisingly, Mr. Swisher holds a B.A. in Linguistics from the University of Virginia. However, he is a certified financial planner who has spent his career in the retirement plan industry advising on both ERISA and non-ERISA governed plans. Mr. Swisher was retained to evaluate defendants’ processes overseeing and monitoring the recordkeeping services and plan fees, and to speak to the reasonableness of the fees paid by the plan during the class period. Mr. Swisher opines that Humana implemented a prudent process to monitor recordkeeping fees and services and that the fees remained reasonable throughout. Plaintiffs challenged what they viewed as Mr. Swisher’s circular reasoning. They wrote, “Swisher is essentially saying, ‘The fiduciary process was prudent because fees were reasonable and the fees were reasonable because the fiduciaries followed a prudent process.’” The court saw it differently. It stated, “that is the nature of the inquiry – a prudent process involving competitive bidding (the RFPs), coupled with the Roland Criss reports and an independent comparison to NEPC surveys which Swisher used to show median recordkeeping fees, could form a basis for concluding that the fees were reasonable.” Essentially, the court said it viewed plaintiffs’ motion to exclude Mr. Swisher’s testimony as arguments amounting to attacks on his conclusions rather than challenges to his foundation or methodology. Accordingly, plaintiffs’ motion to exclude was denied. Next, the court analyzed defendants’ motion to exclude plaintiffs’ expert, Veronica Bray. Ms. Bray holds a B.S. in Business Administration from the University of North Carolina and, like Mr. Swisher, has spent her career in the retirement plan industry assisting plan sponsors. Ms. Bray was retained to provide expert analysis and opinions on defendants’ actions and to answer the question of whether those actions were consistent with the standards of care practiced by a prudent fiduciary acting in the best interest of the plan. Her opinion was that they were not, and that they resulted in unreasonably high plan fees. Defendants challenged Ms. Bray’s comparisons, methodology, and the reliability of her opinion in addressing the dispositive question of this case. While the court stated it is “true that Bray is generally qualified by knowledge and experience in the field, with over two decades of professional involvement within the industry in various roles,” and “Bray’s testimony may even help the trier of fact understand how the Plan’s fees generally compare to smaller plans, such as the ones she cites in her report,” the court nevertheless concluded that “Bray’s opinion applies no reliable methodology to the pertinent question in this litigation: whether Defendants’ process was prudent and whether recordkeeping fees were ultimately ‘excessive relative to the services rendered’… Bray’s method – essentially, reasoning by inference that, because the six smaller plans were able to achieve a fee in the $12-$20 range, it follows that Humana should have also been able to negotiate for fees in that range – is not a reliable basis for concluding the fees were unreasonably high.” The court therefore excluded Ms. Bray’s testimony. Left with one expert’s version of events, the court evaluated the cross-motions for summary judgment and granted judgment in favor of defendants. The court concluded that defendants used a prudent process “consistent with industry practice” and the recordkeeping fees were not excessive relative to the services rendered.

Ninth Circuit

Bracalente v. Cisco Sys., No. 22-cv-04417-EJD, 2024 WL 2274523 (N.D. Cal. May. 20, 2024) (Judge Edward J. Davila). In this putative class action participants of the Cisco 401(k) plan have sued Cisco and the plan’s committee for breaches of fiduciary duties under ERISA. Plaintiffs allege defendants breached their duties of prudence and monitoring by mismanaging the plan and retaining a suite of underperforming BlackRock LifePath Index Target Date Funds as the plan’s designated default investment options. According to the complaint, Cisco and the committee failed to engage in a prudent monitoring process to oversee the funds and to ensure that they were suitable in terms of their performance and returns. By retaining these funds, plaintiffs claim that the participants lost out on millions of dollars in retirement savings’ growth. They say that part of the alleged failure to monitor the funds stems from the committee’s failure to adhere to the plan’s investment policy statement (IPS) and also from the committee’s use of custom benchmarks. Plaintiffs allege that these bespoke benchmarks amounted to little more than “a reflection of the TDF portfolio,” which they argue is “akin to looking in a mirror.” Instead, plaintiffs contend that the fiduciaries should have compared the BlackRock Target Date Funds to other available options and had they done so they would have observed the obvious and unacceptable underperformance of the investments. Additionally, plaintiffs aver that the committee improperly characterized the challenged funds as “passive” rather than “actively” managed. Pursuant to the IPS, passively managed funds were subject to less scrutiny. “For passive investments, the Committee was required to ensure only that those investments ‘meet’ the results of their benchmark; for actively managed investments the IPS required that the Committee ensure the investments ‘exceed’ the results of the relevant benchmark or appropriate peer group.” Finally, plaintiffs alleged that the meeting minutes “reflect no discussion of the performance of the BlackRock TDFs, even though the BlackRock TDFs were obviously the Plan’s most important investment.” Taken together, plaintiffs were confident their allegations demonstrate a plausible inference that defendants fell short of their fiduciary obligations. Unfortunately for the participants, the court did not agree and in this decision granted defendants’ motion to dismiss the second amended complaint. The court parsed through each bit of circumstantial evidence individually. It held that neither the process allegations nor the underperformance allegations plausibly establish claims of imprudence and failure to monitor co-fiduciaries. The court was not convinced that defendants’ use of custom benchmarks was inappropriate. Nor was it persuaded that, to the extent the target date funds were mischaracterized as passive, defendants were violating the IPS. As for plaintiffs’ chosen comparators, the court concluded that all four were inapposite, two because they were composed of actively managed funds, and two because they employed a “through retirement” rather than “to retirement” glide path strategy. Left with allegations of underperformance alone, the court determined these allegations were based on hindsight, and under relevant case law therefore do not plausibly state claims for breaches of fiduciary duties under ERISA. Accordingly, the court once again concluded that the complaint did not meet its pleading burden and therefore granted the motion to dismiss. However, the court’s dismissal under Rule 12(b)(6) was granted with leave to amend as it believes plaintiffs may be able to cure the identified deficiencies and shore up their allegations.

ERISA Preemption

Ninth Circuit

Morton v. Rocky Mountain Hosp. & Med. Serv., No. 2:23-cv-01320-GMN-DJA, 2024 WL 2329129 (D. Nev. May. 21, 2024) (Judge Gloria M. Navarro). Plaintiff Michael Morton submitted a request for authorization to his medical insurance provider, Anthem Blue Cross and Blue Shield, for total disc arthroplasty neck surgery. Anthem denied the preauthorization request, concluding the surgery was not medically necessary. Despite the preauthorization denial, Mr. Morton went ahead with the surgery, and was left with medical expenses of more than $50,000. Mr. Morton sued Anthem in state court asserting six state law claims. Anthem removed the action to the federal system, insisting the claims are preempted by ERISA. It then moved to dismiss. In this order the court agreed with Anthem that the state law claims are preempted by federal law and granted the motion to dismiss them. As an initial matter, the court held that ERISA governs the health plan, as it is sponsored by Mr. Morton’s employer and the employer contributes to the premium payments. Thus, the court stated that the plan meets ERISA’s statutory definition of an “employee welfare benefit plan.” Having established that the plan is governed by ERISA, the court turned to assessing the impact of ERISA preemption on the state law claims. It began with complete preemption. The court concluded that Mr. Morton is a plan participant with a colorable claim for benefits under Section 502 of ERISA, and that his claims of breach of contract and contractual breach of implied covenant of good faith and fair dealing do not implicate any independent legal duty as they are based solely on Anthem’s failure to provide insurance coverage benefits under the plan. Therefore, the court found claims one and two completely preempted. It also concluded that plaintiff’s third claim, tortious breach of the implied covenant of good faith and fair dealing, was likewise based on Anthem’s failure to provide insurance benefits and pay for the surgery, and that it too was completely preempted by ERISA. Further, the court found Mr. Morton’s state law breach of fiduciary duty claim preempted, as alleged breaches of fiduciary duties “while administering the benefit plan is conduct covered by ERISA.” With regard to the claim under Nevada’s Unfair Claims Practices Act, the court relied on Nevada Supreme Court case law which has found that ERISA preempts a private right of action for violation of the act when, as here, it is based on the denial of plan benefits. Finally, the court determined that Mr. Morton’s last claim for declaratory relief “is not independent of his claim for benefits under his plan and is therefore preempted.” In sum, the court wrote that Mr. Morton’s “claims do not simply have a connection to the Group Health Plan; they are entirely based on Anthem’s denial of benefits under the Plan.” Accordingly, all six state law causes of action were dismissed. However, the court provided Mr. Morton leave to amend his complaint to replead his causes of action under ERISA.

Ninth Circuit

Alaska v. Express Scripts, Inc., No. 3:23-cv-00233-JMK, 2024 WL 2321210 (D. Alaska May 21, 2024) (Judge Joshua M. Kindred). The State of Alaska initiated this action on behalf of its citizens against Express Scripts, Inc. and its affiliated companies for fueling the opioid epidemic in Alaska in Express Scripts’ capacity as a Pharmacy Benefits Manager (PBM), mail-order pharmacy, and research provider. Originally, the State filed its suit in Alaska Superior Court and brought two state law causes of action, a claim for public nuisance and a claim for violations of the Alaska Unfair Trade Practices and Consumer Protection Act. Express Scripts removed the action to federal court. Following removal, the State moved to remand the case. However, it has since had a change of heart, and subsequently moved for leave to amend its complaint to add a federal claim for violation of the Racketeer-Influenced and Corrupt Organization Act. In a separate order this week, unrelated to ERISA, the court granted the State’s motion to amend its complaint. In this decision, the court ruled on Express Scripts’ motion to dismiss the two state law causes of action as preempted by Medicare Part D and ERISA. The court ruled that the State’s claims are partially preempted by Medicare Part D, but not ERISA. It stated that the claims are not dependent on the ERISA-governed plans, because existence of the plans is not critical in establishing or determining liability. The state’s causes of action, the court ruled, “would persist with or without ERISA-covered plans as they would proceed with respect to Express Scripts’ formularies adopted by plans offered by government or religious entities, Medicare and Medicaid plans, and individual plans offered by insurers, such as ACA exchange plans.” The court found the particulars of this lawsuit comparable to Rutledge v. Pharmaceutical Care Management Association, wherein the Supreme Court decided that an Arkansas law regulating reimbursement prices for pharmaceuticals and prescription drug coverage “does not act immediately and exclusively upon ERISA plans because it applies to PBMs whether or not they manage an ERISA plan.” Moreover, the court held that the state law claims do not have an impermissible “connection with” ERISA plans as “they do not dictate any particular scheme of substantive coverage,” even though they “target Express Scripts’ plan administration.” If the State of Alaska succeeds on its claims, the court concluded that injunctive relief barring Express Scripts from engaging in further deceptive acts, practices, and conduct would not require it to structure its formularies and benefit plans in any particular way. “That is because the State’s CPA and public nuisance claims are not merely based on the structure of the formularies, but on the manner in which Express Scripts arrived at their structure: allegedly by ignoring evidence that suggested the need for utilization management due to its financial agreements with manufacturers and desire for profits.” Accordingly, the court determined that ERISA does not preempt either state law cause of action. However, as noted, the court dismissed the public nuisance and consumer protection act claims insofar as they implicate Medicare Part D plans.

Pension Benefit Claims

Second Circuit

Estate of Hichez-Zapata v. Emerecia, No. 21 CIVIL 4261 (PKC), 2024 WL 2304704 (S.D.N.Y. May. 22, 2024) (Judge P. Kevin Castel). The children of Confessor Hichez-Zapata filed this action seeking to recover proceeds of their late father’s ERISA-governed annuity fund, which they allege were wrongfully distributed to his ex-wife. Plaintiffs sued the ex-wife, as well as the pension benefit plan, the IUOE Local Annuity Fund. The Plan moved for summary judgment on the claim asserted against it, a claim for breach of fiduciary duty. The court granted the Plan’s motion in this order. First, the court concluded that none of the children had statutory standing to sue under ERISA as no plaintiff was designated as a beneficiary. “Plaintiffs’ contention that Decedent intentionally listed his descendants as beneficiaries in one form but mistakenly omitted them in a second is unsupported conjecture and speculation that would not permit a reasonable trier of fact to conclude that he intended to list plaintiffs as beneficiaries of the annuity account.” Moreover, the court wrote, “[e]ven if Decedent erred in his paperwork, however, his subjective intention would not permit a trier of fact to find that plaintiffs are Plan beneficiaries.” Therefore, the court concluded that none of the individual plaintiffs had standing to bring a claim against the plan under ERISA. Additionally, the court held that plaintiffs provided no evidence, despite repeated court orders to do so, that plaintiff Robert Hichez is the lawful estate administrator. As Mr. Hichez made no showing that he may properly act on behalf of the estate, the estate’s claim against the plan was dismissed by the court. Issues of standing aside, the court took the time to explain that plaintiffs’ claim of fiduciary breach would also fail on the merits. They argued that the Plan breached its duties by failing to investigate Mr. Hichez-Zapata’s marital status and by failing to clarify his choice of designated beneficiaries across different plan documents. The court stated simply, “[n]either the text of ERISA nor the Plan’s governing documents create such a duty. Therefore, in addition to plaintiffs’ lack of statutory standing and inability to proceed on behalf of the Estate, summary judgment is separately granted to the Plan because plaintiffs have not identified an actionable duty breached by the Plan.” As the Plan distributed proceeds in accordance with the written beneficiary designation, the court concluded that it had not erred under ERISA. Its motion for summary judgment was accordingly granted.

Mombrun v. The N.Y. Hotel Pension Fund, No. 22-CV-4970 (PGG) (JLC), 2024 WL 2494577 (S.D.N.Y. May 23, 2024) (Magistrate Judge James L. Cott). Pro se plaintiff Marie S. Mombrun sued the New York Hotel Trades Council and the Hotel Association of New York City, Inc. Pension Fund to challenge pension benefit calculations. Ms. Mombrun alleges that she is entitled to additional pension benefits based on hours she worked in 2019 and 2020. Ms. Mombrun contends that she earned more pension credits than defendants calculated she accrued and that she is entitled to higher per credit benefits following the plan’s 2019 amendment. Further, Ms. Mombrun claims that she was entitled to begin receiving benefits two years earlier, beginning in 2020, because she had applied for Social Security Disability benefits and was therefore eligible for disability pension benefits. Accordingly, Ms. Mombrun asserts that she is entitled to back pay as well as higher monthly payments. Defendants maintain that their benefit calculations were correct and moved for summary judgment. In this report and recommendation, the magistrate judge recommended defendants’ summary judgment motion be granted. As an initial matter, the magistrate agreed with defendants that their decision was entitled to deference as the plan documents grant the Trustees discretionary authority. Under deferential review, the magistrate could not say that the decision to deny additional pension benefits was arbitrary and capricious, particularly in light of the fact that Ms. Mombrun does not dispute that she did not work the requisite 500 hours to receive pension credit in 2019 and 2020, nor even in those years combined, or any year thereafter. Therefore, the magistrate agreed with defendants’ calculations of benefits under the terms of the plan and concluded that Ms. Mombrun is not entitled to either more credits or higher rates per credit. Finally, the magistrate stated that Ms. Mombrun was not entitled to an earlier pension start date because she needed to work a combined 500 hours between 2019 and 2021 to be eligible for a disability pension. “Because defendants’ denial of Mombrun’s benefits application is supported by the plain text of the Plan documents, the denial was not arbitrary and capricious.” For these reasons, the magistrate recommended defendants’ motion for summary judgment be granted and Ms. Mombrun’s complaint be dismissed.

Tenth Circuit

Crawford v. The Guar. State Bank & Tr. Co., No. 22-2542-JAR-GEB, 2024 WL 2700668 (D. Kan. May. 23, 2024) (Judge Julie A. Robinson). Plaintiff David Crawford sued his former employer, The Guaranty State Bank & Trust Company, and the board of directors of the Executive Salary Continuation Plan for the bank under ERISA to challenge defendants’ decision to deny him benefits under the plan. Mr. Crawford worked for the bank for three decades. His work involved cattle financing and issuing agricultural loans. By the end of his tenure at the bank Mr. Crawford was wrapped up in legal trouble involving the Kansas Bureau of Investigation (KBI) and was criminally charged with two felonies for impairing a security interest and making false statements. Mr. Crawford resigned from his position as senior vice president in 2020. One year later the KBI investigation concluded and the bank was provided with the agency’s report. After receiving the KBI report, defendants determined that Mr. Crawford was ineligible for benefits under the plan pursuant to the plan’s “for cause” forfeiture exclusion for actions constituting gross negligence or neglect, willful violation of law, and breach of fiduciary duties. Mr. Crawford challenges the termination of his benefits in this action under Section 502(a)(1)(B). Both parties moved for judgment in their favor. In addition, defendants moved to strike extra-record evidence. The motion to strike was mostly denied and judgment was entered in favor of Mr. Crawford under arbitrary and capricious review. The court found that most of the exhibits challenged by defendants were either part of the administrative record or relevant to issues of defendants’ conflict of interest. However, the court did strike Mr. Crawford’s testimony and also certain documents which it agreed with defendants were properly withheld pursuant to the work product doctrine because they were communications with lawyers in anticipation of litigation. The court then addressed the merits of the board’s decision. Mr. Crawford argued that the decision to terminate his benefits was an abuse of discretion because “(1) it incorrectly interpreted the Plan when it determined that it could terminate [his] benefits based on a retroactive determination that grounds ‘for cause’ existed at the time he voluntarily resigned; (2) the initial termination decision and review of the denials contained several procedural irregularities; (3) the Board’s conflict of interest; and (4) the decision was not based on substantial evidence.” First, the court disagreed with Mr. Crawford that defendants’ interpretation of the plan language was unreasonable. The court stated that a reasonable person would read the forfeiture exclusion to apply in this instance. Second, the court found that the initial adverse determination letter complied with ERISA’s statutory requirements. Nevertheless, the court agreed with Mr. Crawford that he was denied a full and fair review during his internal appeal. The court concluded that the board ignored evidence, failed to conduct a sufficient independent investigation of the underlying facts, and failed to provide Mr. Crawford with all of the documents it considered during the appeal process. Moreover, it found these failures consequential and likely the result of defendants’ conflict of interest including their potential desire “to shift the blame for the cattle deaths and bank losses to Plaintiff.” Accordingly, the court determined that the decision to terminate benefits was arbitrary and capricious and not supported by substantial evidence. Judgment was therefore entered in favor of Mr. Crawford. The decision ended with the court concluding that remanding to defendants to conduct a full and fair review was the proper remedy because defendants’ failure to do so the first time interfered with the court’s ability to review the record for reasonableness. Finally, Mr. Crawford’s requests for interest and attorneys’ fees were determined to be premature and denied without prejudice.

Plan Status

Fifth Circuit

Chocheles v. Heller, No. 24-647, 2024 WL 2350709 (E.D. La. May. 2, 2024) (Judge Eldon E. Fallon). This action is a life insurance dispute between a widow and her late husband’s life insurance carrier, Unum Life Insurance Company of America. Plaintiff Josephine Chocheles is the surviving wife of Christopher Thomas Chocheles. Mr. Chocheles was a partner at the law firm Sher Garner Cahill Richter Klein & Hilbert, LLC. The firm committed to guarantee life insurance benefits amounting to $1 million to its partners. The firm contracted with Unum to provide this coverage, but Unum declined and instead only provided the firm with guaranteed per-partner benefits of $750,000 with no need for any evidence of insurability. The law firm accepted this proposal and then contracted separately through another insurer to provide the additional $250,000 coverage per partner, so that each partner would still receive the promised $1 million. After her husband’s death, Ms. Chocheles submitted a claim for the full $750,000 in benefits from Unum. Unum tendered only $500,000. Unum maintained that additional evidence of insurability was required for the full $750,000 coverage. Ms. Chocheles filed suit in Louisiana state court alleging violations of state law to challenge Unum’s decision, seeking damages in the amount of $250,000 and prejudgment interest. Unum removed the action on ERISA preemption grounds. In response Ms. Chocheles moved to remand. She argued that removal was improper, as it did not satisfy the Federal Rules of Civil Procedure, and because the policy is not governed by ERISA. The court disagreed on both matters and thus denied the motion to remand. First, it concluded that defendants properly and timely removed the action in compliance with federal rules. Second, the court found that the plan was not exempt from ERISA as it was a group policy that covered employees of the law firm as well as its partners. “The group policy at issue here includes three classes…where one class comprises of partners (owners) and another includes staff of the law firm (employees)…The group policy is a single package bearing one single policy number…bargained and paid for as a package by the firm.” Accordingly, the court determined that the plan is governed by ERISA, thus making removal proper. Ms. Chocheles’s motion to remand was therefore denied. 

Pleading Issues & Procedure

Third Circuit

Seibert v. Nokia of Am. Corp., No. 21-20478, 2024 WL 2316551 (D.N.J. May. 22, 2024) (Judge Jamel K. Semper). Participants of the Nokia Savings/401(k) Plan have sued the plan sponsor, Nokia of America Corporation, as well as the Board of Directors of Nokia, and the Nokia 401(k) Committee, for breaches of ERISA’s fiduciary duties of prudence and monitoring. Plaintiffs allege that defendants breached these duties by failing to control plan costs and fees. On August 8, 2023, the court granted in part and denied in part a motion to dismiss by defendants. It held that plaintiffs adequately pled their recordkeeping and administrative cost claims, but that their claims premised on imprudent expense ratios were insufficiently pled because the complaint lacked meaningful benchmarks for comparison. (Your ERISA Watch covered the decision in our August 16, 2023 edition.) The court’s dismissal of the imprudence and monitoring claims premised on the cost of the challenged funds was without prejudice. Accordingly, plaintiffs amended their complaint to address the court’s identified deficiencies. They bolstered support for the expense ratio allegations by including two target date funds in the same Morningstar categories as the challenged funds for comparison and to demonstrate the plan’s underperformance. Now, defendants are once again moving to dismiss the complaint for failure to state a claim. To begin, the court stressed that it would not disturb its previous holding that the complaint sufficiently states claims of imprudence and failure to monitor co-fiduciaries based on allegations that defendants subjected the plan to excessive recordkeeping and administrative costs. The court therefore limited its review here to scrutinizing the previously dismissed claims as they relate to allegations that defendants failed to adequately review the plan’s investment portfolio to ensure that each option was prudent in terms of cost. Thanks to plaintiffs’ amendments, the court held that it can now plausibly infer that defendants’ process was flawed. “The Court accepts Plaintiffs’ new support for their claim[s] at the pleading stage and determines that the FAC sufficiently alleges that Defendants failed to adequately review the Plan’s investment portfolio with due care to ensure the prudence of the cost of each option.” Therefore, the court denied the motion to dismiss both the breach of the duty of prudence claim and the derivative failure to monitor claim.

Remedies

Sixth Circuit

Canter v. Alkermes Blue Care Elect Preferred Provider Plan, No. 1:17-cv-399, 2024 WL 2698405 (S.D. Ohio May. 24, 2024) (Judge Douglas R. Cole). This litigation arose after plaintiff Keith Canter’s claim for spinal surgery was denied by his healthcare plan, the Alkermes Blue Care Elect Preferred Provider Plan, and its administrator, Blue Cross Blue Shield of Massachusetts, Inc. In a previous decision the court concluded that defendants’ “reliance on an incomplete administrative record and failure to accord sufficient weight to all relevant medical factors listed in the Plan violated Canter’s procedural rights under the Plan.” The court remanded to Blue Cross for reconsideration of its decision, and held off on awarding any damages or monetary relief. (Your ERISA Watch covered this decision in our March 30, 2022 edition.) On remand, Blue Cross changed its decision and awarded Mr. Canter benefits, although not the full amount of the cost of his surgery. Believing he is entitled to more – the full cost of the surgery, plus interest, and attorneys’ fees and costs – Mr. Canter moved to reopen the case. In this order the court agreed with Mr. Canter that he is entitled to benefits equaling the full cost of his surgery plus interest to represent make-whole relief and “receive full satisfaction for his ERISA claim.” Furthermore, the court awarded Mr. Canter attorneys’ fees and costs under ERISA’s fee provision. The court stated that Mr. Canter “is entitled to prejudgment interest on his claim in this action under standard common law principles.” It clarified that because Blue Cross provided coverage for the surgery by awarding Mr. Canter benefits and paying him directly, “the legal effect of Canter’s entitlement to a sum certain amount of benefits is that he equally enjoys a right to prejudgment interest of the delay in payment of those funds.” The court determined that an appropriate award of interest would be interest calculated using the blended prejudgment interest rate pursuant to 28 U.S.C. § 1961. Agreeing with Mr. Canter that he is entitled to the full cost of his surgery plus the prejudgment interest, the court awarded Mr. Canter $100,289.01 in total, to be offset by the amount already paid on remand by Blue Cross. As for attorneys’ fees, the court found that Mr. Canter is entitled to a fee award as he had success on the merits and because a fee award is supported by the five factors laid out by the Sixth Circuit. Moreover, the court found the proposed $490 hourly rate of counsel reasonable and in line with ERISA practitioners in the area. The court also declined to reduce Mr. Canter’s counsel’s number of hours. Accordingly, the court awarded Mr. Canter the full requested amount of $204,771 in fees. His request for reimbursement of $622.75 was also granted in full, as the court found it “quite a reasonable amount after five years of litigation.” Judgment was thus entered in these amounts and the case was terminated.

Venue

Seventh Circuit

Lobodocky v. Medxcel Facilities Management, LLC, No. 1:23-cv-00767-JPH-MG, 2024 WL 2320006 (S.D. Ind. May. 22, 2024) (Judge James Patrick Hanlon). Plaintiff Vicki Lobodocky filed duplicate lawsuits, one in the Eastern District of Missouri, and this action in the Southern District of Indiana, alleging she was wrongfully denied life insurance proceeds from her husband’s ERISA-governed policy following his death. Ms. Lobodocky has sued her husband’s former employer, Medxcel, and the joint plan administrators, Prudential Insurance Company of America and Ascension Health Alliance. The three defendants moved to dismiss the action for improper venue, or in the alternative to transfer venue to the Eastern District of Missouri pursuant to the plan’s forum selection clause. In this decision the court denied the motion to dismiss for improper venue under Rule 12(b)(3), but granted the motion to transfer. As a preliminary matter, the court held that defendants failed to show that the Southern District of Indiana was a wrong or improper venue. Nevertheless, the court agreed with defendants that the plan’s forum selection clause was broad, unambiguous, applicable, and controlling. It found that Ms. Lobodocky failed to demonstrate that this was that “most unusual case” where the interest of justice could not be served by holding the parties to the terms of the clause, particularly as Ms. Lobodocky is already litigating the same matter in the Eastern District of Missouri. Therefore, the court granted the motion to transfer venue, and relocated the action to the Eastern District of Missouri.

Mator v. Wesco Distribution, Inc., No. 22-2552, __ F. 4th __, 2024 WL 2198120 (3d Cir. May. 16, 2024) (Before Circuit Judges Hardiman, Porter, and Fisher)

When the Supreme Court decided Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), federal courts were suddenly tasked with the unenviable job of deciding when a complaint sufficiently passes the threshold from “conceivable” to “plausible.” Perhaps nowhere have courts struggled with this calculus more than in the context of suits challenging the fees paid by ERISA-governed 401(k) and other defined contribution plans. The Third Circuit’s decision in this case, reversing a district court’s 12(b)(6) dismissal of such a suit, is a perfect example of the difficult and “context-specific” analysis in which courts must engage.

Nancy and Robert Mator, two participants in a 401(k) plan, brought a putative class action lawsuit against their employer, Wesco Distribution, which was both the plan sponsor and administrator. The complaint stated two counts, one for breach of fiduciary duty in allowing the plan to pay excessive fees to the plan’s recordkeeper, Wells Fargo, and one for failure to monitor the other plan fiduciaries with respect to these fees.

The plan paid these fees both through direct asset-based fees deducted from each participant’s account, and through indirect fees in the form of revenue sharing with plan investments. The Mators alleged that together these two types of fees added up to a shocking $154 average per participant, approximately four times what the Mators alleged was a reasonable per-participant fee based on a number of different comparators, including what Wells Fargo itself charged a number of other plans, as well as the amount received by other service providers such as Fidelity and Vanguard from similarly-sized plans. With respect to the direct and indirect fees, the Mators alleged that all defined contribution plans buy essentially the same bundle of services of approximately the same quality, and they bolstered this assertion by alleging that when the plan switched to Fidelity as the recordkeeper in 2020, the plan received the same services for $54 per participant.

The Mators also alleged that Wesco caused the plan to pay too much by choosing expensive share classes for certain mutual fund investments, rather than available less expensive share classes of the same mutual funds. This led to more money going to Wells Fargo in revenue sharing on top of the already too-high direct fees Wells Fargo was already receiving through the asset-based fees.

Finally, the Mators alleged that Wesco failed to monitor the other individuals responsible for administering the plan and the decision-making processes that led the plan to overpay the fees.

The district court granted three motions to dismiss filed by Wesco, finding each iteration of the Mators’ complaint to be conclusory and insufficiently specific. After the third dismissal, the Mators appealed.

The Third Circuit saw things differently. In concluding that the Mators had stated a claim, the court relied heavily on an earlier Third Circuit decision, Sweda v. University of Pa., 923 F.3d 320 (3d Cir. 2019), in which the court likewise reversed the dismissal of an excessive fee case. (Judge D. Michael Fisher, perhaps not coincidentally, wrote for the court in both this case and Sweda.) While the fees per participant paid by the University of Pennsylvania in Sweda were allegedly higher ($220-$250 per participant), the allegations in the Mators’ case were more specific, according to the court, because the Mators, unlike Sweda, “made additional allegations about the amount of fees paid by comparator plans.”

Although the district court criticized the Mators for failing to make an “apples to apples” comparison, pointing to differences in service codes employed by the various plans, the Third Circuit concluded that the Mators’ allegation that all plans received similar services rendered their claim plausible despite the coding differences. Similarly, although Wesco criticized some of the comparators, the Third Circuit concluded that even winnowing out the more questionable comparators “would not leave the complaint bereft of allegations that help make a fiduciary breach plausible.” Furthermore, although Wesco offered a different calculation of the fees paid by the comparator plans, the court was unpersuaded that Wesco’s alternative calculation was so obvious or natural as to make the allegations of misconduct implausible. And the court was persuaded that the Mators had sufficiently stated that a cheaper comparable service was available through their allegation that the plan obtained just that when it switched service providers in 2020.   

With respect to the mutual fund shares, the court agreed with Wesco that “as the Mators have pled their fiduciary breach claim, the excessiveness of the recordkeeping fees and the impropriety of offering retail-class shares are intertwined” because the fees associated with the higher share classes were paid to Wells Fargo as indirect fees. But this did not help Wesco’s argument. “Because the Mators plausibly allege the fees were too high overall, it is therefore also plausible that it was a fiduciary breach to cause participants to pay indirect fees by offering mutual fund shares subject to revenue sharing.”

Moreover, although the Mators conceded that plan fiduciaries might prudently choose more expensive share classes with revenue sharing features in order to offset plan recordkeeping expenses, they argued that the plan in this case did not benefit from such an arrangement because they alleged that the plan was already paying too much in fees. On this basis the court concluded that “the Mators have alleged a fiduciary breach based on the Plan’s offerings of retail-class mutual fund shares,” although the court expressly “decline[d] to articulate a bright-line rule that a plan administrator breaches its fiduciary duty merely by offering retail-class investment shares.”

Finally, the Third Circuit reversed the district court’s dismissal of the failure to monitor claim, which the parties acknowledged was derivative of the fiduciary breach claim that the court had just determined passed muster.

In the end, the Third Circuit found that the district court’s “criticisms, although partly valid, only nibble around the edges of the complaint,” and thus “what remains plausibly states a claim.”       

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

Attorneys’ Fees

Sixth Circuit

The W. & S. Life Ins. Co. Benefits Comm. v. Jenkins, No. 1:23-cv-609, 2024 WL 2132416 (S.D. Ohio May. 13, 2024) (Judge Douglas R. Cole). The Western and Southern Life Insurance Benefits Committee (“W&S”) filed this interpleader action to resolve competing claims for proceeds on a $118,700 life insurance policy. W&S filed a motion (1) to deposit the proceeds with the court, (2) requesting an award of attorneys’ fees and costs, and (3) to be dismissed as a party in this action. The competing beneficiaries do not contest that W&S properly filed an interpleader action and should be allowed to deposit the proceeds and be dismissed with prejudice from the suit. The court agreed. However, the beneficiary defendants opposed the insurance company’s motion for attorneys’ fees and costs. In its order the court ruled that Sixth Circuit case law supports awarding reasonable attorneys’ fees and costs to insurance companies in ERISA interpleader actions. It disagreed with defendants’ position that fee awards to insurance companies filing interpleader actions creates perverse incentives and resolving conflicting claims for proceeds is simply a part of an insurer’s cost of doing business. On the contrary, the court held that an interpleading party is entitled to recover reasonable costs and fees when it does not claim an interest in the funds, concedes liability, and deposits the funds into the court. Accordingly, the court was satisfied that an award here was merited. However, it did not find W&S’s requested fee award of $32,465.73 in fees and costs reasonable. The court significantly reduced the requested amount on the grounds that the suit is in its nascency, is not complex, and W&S is an insurance company used to interpleader matters. Accordingly, the court found that an attorney fee award of $5,750 was reasonable. As for costs, the court awarded W&S the full requested amount of $2,790.38, as one of the defendants was in England and serving her was unusually costly. W&S was therefore ordered to deposit the disputed funds, plus interest, and minus the $8,540.38 the court awarded it in this order.

Breach of Fiduciary Duty

Fourth Circuit

Sealy v. Old Dominion Freight Line, Inc., No. 1:23-CV-819, 2024 WL 2212905 (M.D.N.C. May. 16, 2024) (Judge Thomas D. Schroeder). Three participants of the Old Dominion Freight Line, Inc. 401(k) Plan have sued the plan’s fiduciaries on behalf of a putative class alleging the fiduciaries are violating ERISA and causing millions of dollars in losses to the plan through excessive and unreasonable fees. Plaintiffs allege the plan is overpaying direct recordkeeping fees, indirect revenue sharing fees, float fees, and investment management fees. Defendants disagree with the allegations and moved to dismiss the complaint for failure to state a claim. Defendants first argued that the proposed class period extends beyond ERISA’s six-year statute of limitations for fiduciary breach claims. The court, however, saw “no reason to dismiss any claim in part at this time on [time limitation grounds] because the class, if certified, would not extend beyond the proper limitations period.” Defendants also attached several exhibits to their motion to dismiss. The court took judicial notice of the Form 5500s, which it viewed as necessarily incorporated into plaintiffs’ complaint, but declined to take judicial notice of Rule 408(b)(2) disclosures and the master services agreements between Old Dominion and its third-party recordkeepers. Although the court was receptive to defendants’ challenges to the complaint, and took time to caution plaintiffs against “any effort to game the system,” the court nevertheless recognized that it must accept plaintiffs’ allegations as true at this preliminary stage. Favoring plaintiffs’ allegations, the court was satisfied that they stated their fiduciary breach claims based on the fees and share classes. Plaintiffs compared Old Dominion’s plan with four other plans which had much lower per-participant fees. At this stage in litigation, the court was persuaded that these other plans were meaningful benchmarks and demonstrated the plausibility of plaintiffs’ allegations that defendants are breaching their fiduciary duties. The court also accepted plaintiffs’ share class allegations of nine investments in the plan. The court expressed that it could not accept defendants’ view that “expense ratios are per se reasonable simply because other cases have found higher expense ratios to be reasonable.” Accordingly, the court held that defendants did not demonstrate that they are entitled to dismissal of plaintiffs’ claims and therefore denied the motion to dismiss.

Class Actions

Seventh Circuit

Urlaub v. Citgo Petroleum Corp., No. 21 C 4133, 2024 WL 2209538 (N.D. Ill. May. 16, 2024) (Judge Matthew F. Kennelly). Plaintiffs Leslie Urlaub, Mark Pellegrini, and Mark Ferry commenced this putative class action against their former employer, Citgo Petroleum Corporation, its two defined benefit pension plans, and the fiduciaries of the plans, alleging defendants violated several provisions of ERISA by calculating joint and survivor annuity benefits using out-of-date mortality assumptions based on 1970s-era mortality tables. Plaintiffs moved to certify a class of over 1,700 individual participants and beneficiaries of the plans who are receiving a joint and survivor annuity. Plaintiffs allege that the total underpayments for the class members is at least $31,713,141. In this order the court provisionally granted the motion to certify the class subject to certain amendments outlined in the decision. To begin, the court ordered that a breach of fiduciary duty subclass be created for members who were issued checks less than six years before the date of this suit was filed whose claims are not time-barred under ERISA’s statute of limitations. The court clarified that plaintiffs Urlaub and Ferry, but not Pellegrini, will be representatives of this subclass. Additionally, the court eliminated 26 individuals from the proposed class whose benefits were not calculated using an eight-percent interest rate and the 1971 mortality table, and instead had joint and survivor annuity benefits calculated using “Tabular Factors.” The court agreed with defendants that these 26 people were not properly within the class and therefore ordered amendment of the class definition to exclude them. The court further excluded three individuals from the proposed class who received a “Subsisted Pre-Retirement Survivor Annuity.” However, after eliminating these 29 individuals, the class size was only whittled down slightly and still encompasses 1,744 members. It was with regard to this revised class that the court evaluated the requirements of Rule 23(a) and (b)(1). Starting with Rule 23(a), the court concluded that the class is sufficiently numerous; that defendants’ single course of conduct is common to all class members; that the named plaintiffs are typical of absent class members as they suffered the same financial harm in the form of lower payments; and that the named plaintiffs and their counsel are adequate representatives to act in the interest of the class. Simply put, the court expressed that the dispute at the heart of this case is whether the single life annuity to joint and survivor annuity conversion factor was within the reasonable range for all class members. Answering this question, the court stated, can and should be done on a class-wide basis. Finally, the court concluded that certification under Rule 23(b)(1) was appropriate because prosecuting separate actions would create a risk of inconsistent and varying adjudications creating potentially incompatible standards of conduct for the defendants. For these reasons, the court provisionally granted plaintiffs’ motion for class certification and directed the parties to propose amended class and subclass definitions consistent with this order.

Disability Benefit Claims

Fourth Circuit

Aisenberg v. Reliance Standard Life Ins. Co., No. CIVIL 1:22-cv-125 (DJN), 2024 WL 2154739 (E.D. Va. May. 14, 2024) (Judge David J. Novak). Over two years ago plaintiff Michael Aisenberg applied for long-term disability benefits after major open-heart surgery rendered him unable to continue working as an attorney. Reliance Standard Life Insurance Company determined that Mr. Aisenberg was not entitled to benefits and denied his claim. Mr. Aisenberg challenged that decision in court. Ultimately, the court found Reliance Standard’s decision arbitrary and capricious. It determined that the insurance company abused its discretion by failing to assess the risk of future cardiovascular harm. Accordingly, the court overturned the denial and remanded to Reliance Standard to reconsider in light of its ruling. On remand, Reliance once again determined that Mr. Aisenberg was not entitled to long-term disability benefits under the plan. Mr. Aisenberg appealed to the court for a second time. The court concluded that Reliance Standard again abused its discretion, and this time ordered it to pay Mr. Aisenberg benefits. Reliance Standard began paying benefits, but determined that it could offset monthly benefit amounts by Mr. Aisenberg’s earned-income Social Security benefits. Mr. Aisenberg disputes this conclusion. He believes that earned-income Social Security benefits do not “result” from his long-term disability and therefore cannot be offset against his monthly payments under the terms of the plan. Accordingly, Mr. Aisenberg filed a motion to determine sum certain. As a preliminary matter, the court resolved the parties’ dispute over exhaustion. Mr. Aisenberg argued that exhaustion does not pose a barrier to the court ruling on the parties’ dispute because the court has jurisdiction to adjudicate disputes related to benefit assessments. The court agreed, and stated that exhaustion would serve no purpose here. The court “therefore declines to require that Plaintiff fully exhaust his internal remedies as to the question of whether Defendant has abused its discretion in interpreting the terms of its Plan related to the benefits offset.” As for the merits of the dispute, the court held that earned-income Social Security benefits do not constitute “other income” under the plain language of the plan. “Defendant’s Plan is unambiguous; it does not permit offsetting Plaintiff’s Social Security benefits, as they result from his earned income, rather than his disability, and Defendant’s plan permits offsetting only those Social Security benefits ‘resulting from the same Total Disability for which a Monthly Benefit is payable.” Reliance Standard has in fact litigated this interpretation of the same language in federal court before, and was told “that when its Plan’s language created a relationship between Social Security benefits and disability benefits, that language must be given interpretive force.” Accordingly, the court determined that Reliance Standard abused its discretion, for a third time in this matter, and ordered it to pay Mr. Aisenberg benefits without the offset.

ERISA Preemption

Seventh Circuit

The Regents of the Univ. of Cal. v. Health Care Serv. Corp., No. 22 C 6960, 2024 WL 2209595 (N.D. Ill. May. 14, 2024) (Judge Lashonda A. Hunt). A healthcare provider, the UCLA Health System, sued defendant Health Care Service Corporation d.b.a. Blue Cross and Blue Shield of Texas in state court for breach of contract and quantum meruit seeking payment of $78,737.20 for medical treatment it provided to three individuals with health insurance plans administered by defendant. To date, defendant has not paid anything. UCLA Health maintains that it is entitled to payment in this amount under the terms of a written contract between it and Anthem Blue Cross. Defendant removed the case to federal court on the basis that the two state law claims are preempted by ERISA. UCLA Health moved to remand its lawsuit to state court. In this decision the court granted the motion to remand. It held that neither prong of the Davila preemption test was satisfied, and thus the claims are not completely preempted by ERISA. The court determined that UCLA Health is not asserting rights for benefits under the ERISA plans. Rather, it explained that UCLA Health brings state law claims independently as a healthcare provider, not as an assignee of benefits under any plan. The court held that UCLA Health’s claims are based on an implied-in-fact contract and the parties’ conduct and interactions which “are independent from any duties that arise under the patients’ ERISA Plans. Indeed, UCLA Health does not contest HCSC’s denial of coverage. Rather, UCLA Health ‘is bringing its own independent claims, and these claims are simply not claims to ‘enforce the rights under the terms of the plan.’’” Therefore, the court concluded that ERISA does not convert UCLA Health’s state law claims into federal ones, and so granted the motion to remand the matter back to state court.

Ninth Circuit

California Brain Inst. v. United Healthcare Servs., No. 2:23-cv-06071-ODW (RAOx), 2024 WL 2190983 (C.D. Cal. May. 15, 2024) (Judge Otis D. Wright, II). Plaintiff California Brain Institute provided medical treatments to two patients insured under healthcare plans administered by defendant United Healthcare Services, Inc. First, California Brain Institute provided medical services to Patient RH. It submitted bills to United for these treatments. United paid the submitted claims for reimbursement, but later claimed that they were overpaid. Accordingly, when California Brain Institute submitted bills for a different patient, Patient MV, United kept the funds to offset them for the mistaken overpayments it made for Patient RH’s separate and entirely unrelated medical services. In this action, California Brain Institute seeks to recover the amounts of the unpaid medical bills from United. It asserts four causes of action: three common law causes of action in its own individual capacity, and one cause of action for recovery of benefits under ERISA Section 502(a)(1)(B) as Patient RH’s assignee. United moved to dismiss the three state law claims. United argued that these claims are conflict preempted under ERISA Section 514(a). The court agreed, and granted the motion to dismiss the common law claims with leave to amend. The court found that the three claims California Brain Institute asserted in an individual capacity are all premised on the existence of the ERISA plan and that it would have no claim to the funds it seeks from United “without the ERISA Plan’s coverage of ‘eligible expenses.’” In addition, the court noted that the overpayment recovery provision is also part of the two ERISA plans, and resolution of the dispute requires interpreting and analyzing the plans. “Accordingly, MV’s ERISA Plan will necessarily play a ‘critical factor in establishing’ United’s liability for [plaintiff’s] claims, which are therefore preempted under § 514(a)’s ‘reference to’ test.” The court further held that the individual state law claims were preempted under the “connection with” test as it viewed these claims as pursuing an alternative enforcement mechanism for benefits due under ERISA-regulated plans. Thus, because the court found the complaint explicitly alleges that the provider and United did not have any separate contract and fails to allege any independent representation made by United to pay benefits, the court determined that California Brain Institute’s “claims are essentially claims for wrongfully withheld benefits.” The three state law claims were accordingly dismissed.

Fiscu v. UKG Inc., No. 3:23-cv-01240-AN, 2024 WL 2153537 (D. Or. May. 13, 2024) (Judge Adrienne Nelson). Plaintiff Ovidiu Fiscu became ill in the fall of 2021 and took extended leave from his employment at UKG Inc. In February 2022, Mr. Fiscu applied for benefits under UKG’s supplemental long-term disability plan (“SLTD plan”). His request for benefits was denied. In response, Mr. Fiscu commenced a lawsuit in state court, alleging state law claims. UKG removed the action to federal court and subsequently moved to dismiss for failure to state a claim, arguing the state law claims are preempted under ERISA. The court agreed with UKG that the claims are preempted and thus granted the motion to dismiss, with leave to amend, in this order. First, the court construed the SLTD plan as an ERISA-governed plan. It concluded that Mr. Fiscu did not show that the SLTD plan satisfies all four requirements of ERISA’s “safe harbor” provision. Specifically, the court noted that Mr. Fiscu did not address whether UKG endorsed the program and whether UKG receives no consideration for the program. Accordingly, the court considered the plan to be an ERISA plan and therefore progressed to analyzing whether the state law claims are preempted by ERISA. It began by evaluating whether the claims are completely preempted under the two-prong Davila test. As to the first prong, the court found that Mr. Fiscu is a participant in the plan with “a colorable claim for vested benefits,” and his “complaint appears to seek benefits under an ERISA plan and to clarify his rights under an ERISA plan.” Thus, the court held that prong one of the Davila test was satisfied. Further, the court determined that Mr. Fiscu’s breach of contract and declaratory judgment claims do not arise independently of the ERISA plan and its terms, and that they are therefore completely preempted. However, Mr. Fiscu’s negligence claim was not found by the court to be completely preempted by ERISA, as the “legal implications of [UKG’s] alleged misrepresentation and negligent actions would exist whether or not the SLTD plan was governed by ERISA.” Nevertheless, the court found that the negligence claim was preempted by Section 514 of ERISA because the claim “would not exist but for the fact that UKG allegedly denied plaintiff benefits.” Accordingly, the court agreed with UKG that ERISA governs this action and Mr. Fiscu cannot sustain his state law claims. The court ended its decision by granting Mr. Fiscu leave to amend his complaint to plead causes of action under ERISA, or to plead sufficient facts to establish that the SLTD plan is not governed by ERISA.

Sagebrush LLC v. Cigna Health & Life Ins. Co., No. 24-00353-CJC (JDEx), 2024 WL 2152458 (C.D. Cal. May. 13, 2024) (Judge Cormac J. Carney). A mental health and substance abuse treatment center, plaintiff Sagebrush LLC, sued Cigna Health and Life Insurance Company and Cigna Healthcare of California, Inc. in California state court for failing to properly reimburse it for treatment it provided to 24 patients insured under Cigna healthcare plans. Sagebrush seeks payment of $7,267,347.06 under the following state law causes of action: violation of California’s unfair competition law, breach of implied contract, unjust enrichment, quantum meruit, and accounts stated. The Cigna defendants removed the action to federal court. Defendants maintain that the state law claims are preempted by ERISA. Sagebrush disagrees. It moved to remand its action back to state court. In this decision the court agreed with Cigna on the issue of preemption. It held that Sagebrush is a provider with assigned benefits for at least one of the patients, meaning it has standing to sue for benefits under ERISA. Moreover, at heart, the court determined that the claims in this action “in effect, seek benefits that are owed under an ERISA plan.” Finally, the court evaluated whether there was an independent legal duty implicated by defendants’ actions. Cigna argued that at least the unfair competition law is completely preempted by ERISA because it is entirely dependent on the existence and terms of the ERISA plans. Once again, the court agreed. It found that plaintiff’s claim seeks reimbursement for medically necessary services at rates tied directly to the ERISA-regulated benefit plans. Because ERISA completely preempts at least one of Sagebrush’s state law claims, the court held that removal was appropriate and therefore denied the motion to remand.

Life Insurance & AD&D Benefit Claims

Ninth Circuit

Wilcox v. Dearborn Ins. Co., No. 23-55484, __ F. App’x __, 2024 WL 2130598 (9th Cir. May 13, 2024) (Before Circuit Judges Tallman, Forrest, and Bumatay). Plaintiff-appellant Kevin Wilcox sued Dearborn Insurance Company under ERISA Section 502(a)(1)(B) seeking to recover waiver-of-premium life insurance benefits provided to disabled plan participants under his policy. Following a trial, the district court entered judgment in favor of Dearborn. Mr. Wilcox appealed the unfavorable ruling to the Ninth Circuit. Reviewing the district court’s legal conclusions de novo and factual findings for clear error, the court of appeals affirmed in this short unpublished decision. The Ninth Circuit held that the lower court had not erred by concluding that “in the absence of ongoing symptoms, the evidence presented by Wilcox was insufficient to show that he could not work in any occupation.” The appeals court disagreed with Mr. Wilcox that the district court had improperly required him to demonstrate “persistent symptomatology” to establish an inability to work in any occupation. Rather, the Ninth Circuit viewed the district court’s conclusion as based on a plausible and reasonable reading of the medical records. Additionally, the court of appeals rejected Mr. Wilcox’s argument that the district court improperly considered reasons for denial that Dearborn itself did not provide during its administrative appeal process. It stated that Dearborn provided a clear and specific reason for its denial to “ensure meaningful review,” and that the district court appropriately examined only Dearborn’s rationales for its denial in its review. The district court’s decision was accordingly affirmed.

Medical Benefit Claims

Ninth Circuit

Lawrence B. v. Anthem Blue Cross Life & Health Ins. Co., No. 23-cv-06529-JSC, 2024 WL 2112866 (N.D. Cal. May. 8, 2024) (Judge Jacqueline Scott Corley). Plaintiff Lawrence B. paid out of pocket for his daughter’s treatment at a residential treatment facility after defendant Anthem Blue Cross Life & Health Insurance Company denied the family’s claim for coverage by concluding the care was not medically necessary under the terms of the ERISA-governed healthcare plan. In this action, plaintiff seeks to recover those benefits. He asserts two claims, a claim for plan benefits under Section 502(a)(1)(B), and a claim for equitable relief for breach of fiduciary duty under Section 502(a)(3). Anthem moved to dismiss the second cause of action for breach of fiduciary duty. It argued that plaintiff cannot sustain both claims, insisting that the two counts are duplicative because they are both premised on allegations Anthem failed to follow plan terms. In addition, Anthem challenged the sufficiency of the claim on the grounds that “Plaintiff fails to plead any fact which would allow this Court to reasonably infer the MCG clinical guidelines fail to align with the Plan’s definition of medical necessity.” In this decision, the court ruled that the complaint currently fails to state a fiduciary breach claim against Anthem and therefore granted the motion to dismiss. It concluded that “the complaint is devoid of facts to support” its allegations that MCG Behavioral Health Guidelines used by defendant are inconsistent with the plan’s definition of “medically necessary” treatment. Thus, the court stated that it cannot currently infer that Anthem’s reliance on the MCG clinical guidelines to determine medical necessity for mental health benefits violates plan terms and is more restrictive than generally accepted standards of medical care. The court therefore agreed with Anthem that plaintiff failed to state a fiduciary breach claim, and accordingly granted the motion to dismiss the second cause of action. However, dismissal was granted with leave to amend, as the court broadly rejected Anthem’s argument that plaintiff cannot sustain claims one and two. The court concluded it was premature to determine whether plaintiff’s Section 502(a)(3) claims for relief are duplicative of his claim for benefits at this stage.

Pension Benefit Claims

Second Circuit

Grosso v. AT&T Pension Benefit Plan, No. 22-1701-cv, __ F. App’x __, 2024 WL 2180316 (2d Cir. May. 15, 2024) (Before Circuit Judges Leval, Merriam, and Kahn). Plaintiffs-appellants Vincent C. Grosso and Patricia M. Wing were each eligible to begin receiving early retirement benefits at the age of 55. However, neither filed a written request for benefits until 2017, when Mr. Grosso was 62 and Ms. Wing was 59. Along with their elections to receive early retirement benefits, plaintiffs also sought to receive retroactive payments dating back to when each was age 55. The AT&T Pension Benefit Plan denied their claims for retroactive pension benefits. The Plan concluded that under the governing plan terms Mr. Grosso and Ms. Wing had to have filed written applications for early retirement benefits at age 55 to receive the benefits at that time. Because they waited, they were not entitled to retroactive benefits. This litigation followed the denials of the retroactive pension benefits. The district court ultimately granted summary judgment to AT&T under abuse of discretion review. It held that defendants reasonably interpreted the plan to require participants to file an election to become entitled to the early retirement benefits. Mr. Grosso and Ms. Wing appealed the district court’s denial of their motion for summary judgment to the Second Circuit. In this order the court of appeals affirmed. The Second Circuit agreed with the district court that the denials were reasonable and supported by substantial evidence “and that summary judgment in favor of defendants was therefore appropriate.” Finding the denials for retroactive early retirement benefits “at minimum, not arbitrary and capricious,” the appeals court affirmed the grant of summary judgment to the AT&T defendants on plaintiffs’ claim for benefits under Section 502(a)(1)(B).

Statute of Limitations

Tenth Circuit

J.H. v. Anthem Blue Cross Life & Health Ins. Co., No. 2:23-CV-00460-TS-DBP, 2024 WL 2243316 (D. Utah May. 16, 2024) (Judge Ted Stewart). Plaintiff A.H., a beneficiary in an insured ERISA-governed healthcare plan, was treated at a residential treatment center from July 1, 2020 to June 4, 2021. Anthem Blue Cross Life and Health Insurance Company denied the claim for benefits for this treatment, determining that it was not medically necessary. The family appealed the adverse decision, and on August 12, 2021, Anthem affirmed its denial of benefits and informed the family that it was a final adverse determination. In its letter, Anthem informed the family that under their plan they had one year to bring a civil lawsuit under ERISA Section 502(a) to challenge the decision in court. Before bringing a lawsuit, the family submitted an external review request for the denied claim. On October 21, 2021, the external review agency upheld Anthem’s denial of coverage. The family would eventually file this action, but not until July 17, 2023. Viewing this litigation as untimely, Anthem referred to the plan terms and moved to dismiss the complaint. Relying on the unambiguous limitation period in the plan which states: “If you bring a civil action under Section 502(a) of ERISA, you must bring it within one year of the grievance or appeal decision,” the court concluded that plaintiffs needed to file their complaint no later than October 31, 2022 to comply with the Plan’s one year statute of limitations. Because they filed their complaint almost a whole year after this date, the court agreed with Anthem that the complaint was untimely and barred. Thus, the court granted the motion to dismiss.