Staffing Servs. Ass’n of Ill. v. Flanagan, No. 23 C 16208, 2024 WL 1050160 (N.D. Ill. Mar. 11, 2024) (Judge Thomas M. Durkin)

Temporary employees have it tough. They often do the same work as their colleagues, but because they are not official full-time employees at their workplace they are often not entitled to the same pay or benefits their peers receive.

The State of Illinois recently attempted to ameliorate this situation by amending its Day and Temporary Labor Services Act. Among the amendments was Section 42, which requires temporary staffing agencies to “pay temporary employees who work at a particular site for more than ninety days within a year at least the same wages and ‘equivalent benefits’ as the lowest paid, comparable, directly-hired employee employed by the third-party client.” Section 42 further allows agencies to pay “the hourly cash equivalent of the actual cost benefits” as an alternative to providing “equivalent benefits.”

This action followed. The plaintiffs, which include two temporary staffing trade associations and three staffing agencies, sued Jane R. Flanagan, the Director of the Illinois Department of Labor. The plaintiffs filed a motion for a preliminary injunction, raising several issues, but because this is Your ERISA Watch, we will focus on plaintiffs’ ERISA-related argument.

In short, plaintiffs contend that Section 42’s “equivalent benefits” provision is preempted by ERISA because it “relates to” their employee benefit plans by having a “connection with or reference to” those plans. The court agreed with plaintiffs: “Plaintiffs have made a sufficiently strong showing that Section 42 fits the bill. The provision ‘dictates the choices facing ERISA plans’… Agencies must determine the value of many different benefit plans and then determine whether to provide the value in cash or the benefits themselves by modifying their plans or adopting new ones. Such a direct and inevitable link to ERISA plans warrants preemption.”

The Department of Labor objected, arguing that Section 42’s cash alternative allowed the law to escape preemption because it enabled the plaintiffs to comply without involving their benefit plans. The court rejected this argument, however, citing the Supreme Court’s decision in Egelhoff v. Egelhoff. In Egelhoff, the Supreme Court ruled that a Wisconsin law requiring payment of non-probate benefits to certain beneficiaries was preempted, even though the law had an opt-out provision, because it required administrators to tailor their plans to individual jurisdictions rather than apply them uniformly as intended by ERISA.

The court ruled, “The same applies here. Even with the choice between providing benefits or cash, Section 42 denies agencies the ability to administer its ERISA plans uniformly.” The court noted that the law placed a burden on plaintiffs that other states did not. For their Illinois employees, plaintiffs would have to “collect and analyze benefit plan information from their client for a comparable employee, compare those plans to their existing plans, and determine whether to modify or supplement their plans, calculate and pay the cost of any benefits they do not presently provide, or both.”

The court further ruled that the cash alternative was insufficient to evade ERISA preemption because Section 42 “requires agencies to make judgment calls about employees’ eligibility and level of benefits on an individualized and ongoing basis.” Under the law, agencies have to “engage in qualitative assessments” involving “complex and particularized” and “inherently discretionary” determinations regarding seniority, working conditions, similarity of work, and other factors. These determinations required “an ongoing administrative scheme to meet the employer’s obligation,” which “raises the very concern ERISA preemption seeks to address.”

In support of its position, the Department of Labor cited cases involving other laws that had survived preemption challenges, but the court found them inapposite. The court distinguished prevailing wage cases, observing that “such statutes are afforded particular deference because public works projects are an area of traditional state regulation.” Furthermore, such laws often used a schedule of wages which made compliance straightforward, unlike “the discretionary and individualized determinations that Section 42 requires.”

The court also distinguished other minimum compensation laws cited by the Department because they “did not involve the discretionary decision-making required by Section 42.” San Francisco’s minimum healthcare benefit requirement imposed a minimal burden of “mechanical record-keeping,” while New York’s home health aide compensation law, while “somewhat closer,” allowed compliance through “any mix of wages and benefits that equaled or exceeded the specified minimum rate.” Thus, it paled in comparison to Section 42’s “ongoing, particularized, discretionary analysis.”

As a result, the court ruled that Section 42 had an impermissible “connection with” ERISA plans, rendering it preempted. As for a remedy, because plaintiffs (a) had made a strong showing of likelihood of success on the merits, (b) were “poised to incur significant costs of compliance and face the possibility of penalties,” and (c) “point[ed] to the potential departure of agencies from Illinois if Section 42 goes into effect,” the court ruled that the balance of equities weighed in their favor. Thus, the court granted plaintiffs’ motion for a preliminary injunction based on their ERISA preemption argument.

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

Arbitration

Fourth Circuit

Franklin v. Duke Univ., No. 1:23-CV-833, 2024 WL 1048123 (M.D.N.C. Feb. 29, 2024) (Judge Catherine C. Eagles). Plaintiff Joy Franklin, a former employee of Duke University and a participant in its pension benefit plan, sued Duke and its retirement board contending that they have been incorrectly calculating benefits under the plan. Specifically, Franklin alleges that Duke used “outdated and unreasonable actuarial equivalency formulas in violation of ERISA’s actuarial equivalence requirement.” She alleged a claim under ERISA § 1132(a)(2), on behalf of the plan, and under § 1132(a)(3) individually and on behalf of a putative class. Duke filed a motion to (1) dismiss both claims for lack of subject matter jurisdiction, (2) compel arbitration on Franklin’s (a)(3) claim, and (3) dismiss the complaint for failure to state a claim. On the first issue, Duke argued that Franklin had no standing to bring her claims because the plan was a defined benefit pension plan, and thus her claim was barred by the Supreme Court’s decision in Thole v. U.S. Bank, N.A. However, the court distinguished Thole, finding that Franklin had standing because she alleged that she had been injured by a reduction in her benefit, which was more concrete than the claims by the plaintiffs in Thole. On the second issue, Duke argued that while Franklin was not required to arbitrate her (a)(2) claim, the plan obligated her to arbitrate her (a)(3) claim pursuant to a 2021 amendment to the plan. The court disagreed. Although ERISA claims are “generally arbitrable,” the court found “there is no evidence that Ms. Franklin agreed to arbitrate her 29 U.S.C. § 1132(a)(3) claims.” Duke’s plan amendment was thus “unilateral” and “a far cry from mutual agreement.” Indeed, the court stated that “since the Plan gives Duke an unlimited right to amend the Plan to add an arbitration provision, the faux agreement is illusory and unenforceable. It could hardly be clearer that this is not an enforceable agreement to arbitrate under the [Federal Arbitration Act] and under North Carolina law.” Duke argued that ERISA gave it the power to enforce the arbitration provision, but the court ruled that this power did not override the FAA’s requirement that parties agree to arbitration provisions. The court further stated that allowing otherwise would be contrary to ERISA’s statutory policy goal of providing “ready access to the Federal courts.” The court also distinguished Duke’s cited cases, noting that they involved (a)(2) claims on behalf of the plan, not (a)(3) claims brought by individuals such as Franklin. Thus, the court denied the first two of Duke’s three motions. As for Duke’s third motion, for failure to state a claim, the court stated that it “remains under advisement.” It appears that it will remain under advisement for some time because Duke has already appealed this decision. We will of course keep you advised of any rulings by the Fourth Circuit in the matter.

Breach of Fiduciary Duty

Second Circuit

Wong v. I.A.T.S.E., No. 23 CIV. 7629 (PAE), 2024 WL 898866 (S.D.N.Y. Mar. 1, 2024) (Judge Paul A. Engelmayer). Plaintiff Ka-Lai Wong was engaged to Sean McClintock, who unexpectedly passed away in July of 2022. McClintock was a participant in defendant IATSE’s employee benefit plan. Three weeks before his death, McClintock signed, but did not submit, a form designating Wong as his sole beneficiary under the plan. IATSE refused to pay plan benefits to Wong and instead paid them to McClintock’s allegedly estranged parents, who were the default beneficiaries under the plan in the event no designated beneficiary existed. Wong sued, bringing a single claim for breach of fiduciary duty under ERISA. IATSE filed a motion to dismiss. The court addressed each of the three fiduciary duties of loyalty, care, and acting in accordance with plan documents. The court found no breach of the duty of loyalty because Wong did not plead that IATSE acted self-interestedly. Instead, she argued that IATSE’s beneficiary designation process was faulty because it did not “deploy electronic beneficiary designation processes” and did not sufficiently “educat[e] its participants,” which the court deemed insufficient. The court likewise found no breach of the duty of care because Wong did not plead that IATSE misrepresented or materially omitted any relevant facts. Wong argued that IATSE should have told McClintock that he could submit the beneficiary designation form online, but the court ruled that failing to do so did not amount to misconduct or misrepresentation. Finally, the court ruled that IATSE acted in accordance with plan documents. The plan provided, “The Fund will only recognize beneficiary forms that it actually receives before your death,” and Wong was forced to concede that IATSE adhered to this rule. Thus, ERISA required IATSE to pay the benefits to McClintock’s parents, “notwithstanding the possibility of ‘harsh results.’” As a result, the court granted IATSE’s motion to dismiss, with prejudice.

Sixth Circuit

International Union of Painters & Allied Trades Dist. Council No. 6 v. Smith, No. 1:23-cv-502, 2024 WL 1012967 (S.D. Ohio Mar. 8, 2024) (Judge Douglas R. Cole). In this case, a trade union and a number of ERISA fiduciaries who are union officials brought suit challenging the way in which a health and welfare plan for union members is being operated. The cast of characters and allegations are complicated but, in a nutshell, the plaintiffs have sued both the union-side trustees and the employer-side trustees who operate the plan, asserting that they breached their fiduciary duties to the plan by refusing to vote to remove the two union-side trustees even after the union tried to do so and amending the plan to make it quite a bit more difficult to do so. They alleged that the defendants have acted impudently by entrenching the two union-side trustees and that they have acted in a self-dealing manner by having the plan itself pay for the attorney’s fees associated with defending their actions. In this decision, the court addressed a motion for preliminary injunction filed by the plaintiffs, as well as a motion to dismiss filed by the two employer-side trustees and a motion to intervene filed by the plan. With respect to the preliminary injunction, the court was unconvinced following a hearing that plaintiffs had articulated and offered proof of irreparable harm. The court was unpersuaded that plaintiffs had articulated how they might suffer from having defendants continue to vote their own self-interest or from having plaintiffs’ votes diluted, nor had they articulated to the court’s satisfaction how any such harm would not be compensable through money damages. The court was likewise unconvinced by plaintiffs’ arguments that entrenchment was a harm in and of itself, noting that cases cited by plaintiffs dealt with situations where it was harder for both the union and the employers to replace trustees, as distinguished from this case where only the union-side trustees were allegedly entrenched. Moreover, the court found that plaintiffs had not sufficiently shown illegal entrenchment for preliminary injunction purposes, primarily because the court was not convinced that the union’s constitution ought to govern, or that “at-will” removal powers were mandated by or even consistent with ERISA’s principle that loyalty to the plan should be paramount. The court thus denied the motion for preliminary injunction. However, the court granted the motion to dismiss filed by the union trustees, concluding that the trustees were acting as settlors, not as plan fiduciaries, in amending the plan to make it harder to remove the union-side trustees. The court also concluded in a somewhat ipse dixit fashion that the trustees were not acting as fiduciaries when declining to recognize the removal and appointment notice from the union because once they had amended the pan documents, they were no longer required to do so. As far as the allegations that the trustees violated their duties by voting to reimburse the legal expenses of the union trustees in defending the case, the court concluded that this was consistent with ERISA because the legal expenses were not related to a fiduciary breach but were incurred in the management and preservation of the trust and its assets. This ruling clearly does not bode well for plaintiffs on the remainder of their case against the union-side trustees. Finally, the court granted the plan’s motion to intervene, both as of right and as a permissive matter, concluding that the plan was not already a party, its motion was timely, it had an interest in the case that would be impaired absent intervention, and none of the existing parties were advocating for the plan’s interests.    

Discovery

Sixth Circuit

DaVita Inc. v. Marietta Mem. Hosp. Emp. Ben. Plan, No. 2:18-CV-1739, 2024 WL 957734 (S.D. Ohio Mar. 6, 2024) (Magistrate Judge Kimberly A. Jolson). Kidney dialysis provider DaVita brought this ERISA benefits action against an employee medical benefit plan alleging that the plan and its benefit manager MedBen “reimburse[] dialysis services at a depressed rate.” In this order the court addressed three discovery disputes. First, DaVita requested documents from MedBen relating to plan dialysis claims dating back to 2012, but MedBen refused to produce documents prior to 2014. The court agreed with DaVita, ruling that the requested documents were relevant to DaVita’s effort to show how defendants administered dialysis claims over time. MedBen contended that production of these documents would be an undue burden because it was expensive and difficult due to HIPAA protections. However, the court ruled that MedBen did not provide sufficient evidence to support these assertions, especially since MedBen was producing similar documents for later time periods. Next, the court found that DaVita’s request for documents related to MedBen’s other clients was relevant. However, the court was more convinced by MedBen’s burden argument on these documents, because MedBen represented that it had 180 other clients, many of which had multiple plans. The court thus ordered the parties to meet and confer regarding this issue and report back to the court. Second, the court addressed DaVita’s demand for emails and electronically stored information. DaVita contended that defendants had produced very few documents, and sought more information about how they conducted their searches. The court agreed that DaVita’s concerns were “not unfounded,” but again ruled that “the parties must do more to resolve their dispute” and ordered them to meet and confer and file a report. Finally, DaVita complained that defendants had “provided little information on their litigation holds.” The court noted that litigation holds by themselves are not protected by privilege, but “litigation hold letters generally are privileged and not discoverable.” Thus, the court denied DaVita’s motion on this issue, but without prejudice in the event spoliation issues arose at a later time.

Life Insurance & AD&D Benefit Claims

Fifth Circuit

Krishna v. National Union Fire Ins. Co. of Pittsburgh, No. 23-20289, __ F. App’x __, 2024 WL 1049474 (5th Cir. Mar. 11, 2024) (Before Circuit Judges Stewart, Clement, and Ho). As we reported in our June 14, 2023 edition, the district court in this case upheld defendant National Union Fire Insurance Company’s (NUFIC) denial of plaintiff Deepa Krishna’s claim for business travel accident insurance benefits after Krishna’s husband died in a plane crash. The court ruled that Krishna did not meet her burden of proving that her husband’s plane trip was “at the direction of” his employer, which was required under the plan in order to be “business travel” and thus qualify for benefits. Krishna appealed. First, she argued that the district court erred in using the deferential abuse of discretion standard of review because (a) the entities that denied her claim were not authorized to do so, and (b) NUFIC violated ERISA procedural regulations in denying her claim. The Fifth Circuit disagreed, ruling that the employer had delegated discretionary authority to NUFIC, NUFIC was permitted to delegate ministerial tasks to other entities, and NUFIC had made the final decision as required even if the other entities appeared on the denial letterhead. As for Krishna’s procedural argument, the Fifth Circuit applied its “substantial compliance” test and ruled that any delay by NUFIC in denying Krishna’s claim did not harm her, and that she had received a full and fair review of her claim. On the merits of Krishna’s claim, the Fifth Circuit upheld the district court’s ruling that the plan language was not ambiguous and that the husband’s plane trip did not qualify as business travel. Even if the language was ambiguous, the Fifth Circuit held that because NUFIC had discretionary authority, its “interpretation was a reasonable exercise of its ‘interpretive discretion.’” The judgment below was thus affirmed.

Pension Benefit Claims

Sixth Circuit

Emberton v. Board of Trustees of Plumbers & Pipefitters Local 572 Pension Fund, No. 3:21-CV-00757, 2024 WL 900209 (M.D. Tenn. Mar. 1, 2024) (Judge Aleta A. Trauger). Billy Joe Emberton’s wife, Kathy Emberton, brought this action as administrator of Mr. Emberton’s estate after his death against the defendant, an ERISA-governed pension fund. Mr. Emberton was a pipefitter who submitted a claim for early pension benefits in 2018, which the fund initially approved, but then denied, determining that Mr. Emberton was not entitled to benefits because he had not “retired” according to the plan. The plan defined “retire” as “a Participant’s complete cessation of: (i) any kind of work for an Employer, or (ii) any plumbing or pipefitting work in the construction or maintenance industries within the geographical area of the Fund.” Mr. Emberton filed this action in 2021 and the parties submitted cross-motions for judgment. The parties agreed that the “arbitrary and capricious” standard of review applied. Under this standard of review, the court agreed with Ms. Emberton that the fund abused its discretion in ruling that Mr. Emberton did not meet part (i) of the “retire” definition. The record showed that although Mr. Emberton had continued working, his employer was not an “Employer” as defined by the plan, i.e., an employer who had a collective bargaining agreement with the fund. Thus, the court moved on to the issue of whether it should address part (ii) of the “retire” definition. Ms. Emberton argued that the word “or” in between parts (i) and (ii) meant that Mr. Emberton only had to satisfy one of the two parts to be entitled to benefits, and thus there was no need to address part (ii). The fund, on the other hand, did not even address the issue of what “or” meant in its briefing. Furthermore, the court stated that “[n]either party…attempts to construe the definition of ‘Retire’ in light of the Plan as a whole.” The court thus examined other parts of the plan for assistance, as well as a Seventh Circuit decision addressing similar facts. The court noted that “the Plan contains a provision requiring the suspension of benefits for any employee who is reemployed following retirement, under certain circumstances,” which mitigated against Ms. Emberton’s position. Thus, the court ruled that while the “retire” definition’s use of the word “or,” on its own, was ambiguous, it was “rational in light of the plan as a whole” to conclude that the definition meant “that a participant is retired if he is not engaged in (has ceased) ‘(i) any kind of work for an Employer’ and is not engaged in ‘(ii) any plumbing or pipefitting work in the construction or maintenance industries within the geographical area of the Fund.’” Indeed, according to the court, “this interpretation is the only one that makes sense.” As a result, even though the fund “fail[ed] to articulate a legitimate rationale,” its decision was not arbitrary and capricious, and the court thus granted the fund’s motion and denied Ms. Emberton’s.

Pleading Issues & Procedure

Fourth Circuit

Deutsch v. IEC Grp., Inc., No. CV 3:23-0436, 2024 WL 1008534 (S.D.W. Va. Mar. 8, 2024) (Judge Robert C. Chambers). Plaintiff Daniel Deutsch, proceeding pro se, filed a form complaint in West Virginia state court alleging wrongful denial of $309.59 in medical benefits for preventative bloodwork he received. Defendant AmeriBen, the insurer of Deutsch’s benefit plan, removed the case to federal court on ERISA preemption grounds and filed a motion for a more definite statement. As we explained in our September 20, 2023 edition, a magistrate judge denied this motion but gave Deutsch an opportunity to amend his complaint to provide more factual detail in accordance with federal pleading requirements. Deutsch proceeded to file an amended complaint, AmeriBen filed another motion to dismiss, and the magistrate judge recommended that this motion also be denied. AmeriBen objected to the magistrate’s report, and thus the assigned district judge addressed those objections in this order. AmeriBen made two arguments: the magistrate judge (1) improperly “rewrote” Deutsch’s pleadings, and (2) ignored binding Fourth Circuit authority regarding Deutsch’s estoppel claim. The court rejected both arguments. On the first issue, the court ruled that AmeriBen’s arguments were “disingenuous” because Deutsch had expressly pleaded that the bloodwork he received was covered by his plan. Furthermore, by pleading that he “relied on oral and verbal representations from [] AmeriBen’s representatives that he would not bear any out-of-pocket expenses,” he had adequately pleaded estoppel. AmeriBen contended that the representations were made by a third party, not by AmeriBen, but the court agreed with the magistrate judge that the record “suggest[ed] a greater connection between the two parties.” On the second issue, the court ruled that the magistrate judge properly considered the Fourth Circuit’s controlling authority on estoppel, Coleman v. Nationwide Life Ins. Co., but neither that case nor any other Fourth Circuit case addressed “the question of whether estoppel claims are available to address ‘informal interpretations of ambiguous provisions’ of an ERISA plan.” As a result, AmeriBen’s “contention that estoppel is categorically unavailable in ERISA actions is conjectural.” Thus, the court adopted the magistrate judge’s report and recommendation, and Deutsch’s claim for $309.59 in benefits lives to fight another day.

First Reliance Bank v. AmWINS, LLC, No. CV 3:22-2674-MGL, 2024 WL 942778 (D.S.C. Mar. 5, 2024) (Judge Mary Geiger Lewis). Plaintiffs, a bank and its welfare benefit plan, sued the defendants, who were “generally involved with the implementation of the plan,” alleging five state law claims in South Carolina state court. Defendants removed the case to federal court and filed a motion to dismiss, arguing that plaintiffs’ claims were preempted by ERISA. The court chided both sides for “fail[ing] to mention,” presumably because “they are all unaware and unfamiliar with long-standing Fourth Circuit precedent,” that, “when a claim under state law is completely preempted and is removed to federal court because it falls within the scope of [ERISA], the federal court should not dismiss the claim as preempted, but should treat it as a federal claim under [ERISA].” The court thus denied defendants’ motion and ruled that it would “consider any other arguments as to the merits of Plaintiffs’ state claims at the summary judgment stage.” The court did, however, direct plaintiffs to “file a status report indicating whether they wish the Court to treat their state claims as ERISA claims going forward. If yes, they may amend their complaint, but the Court will decline to require it.”

Provider Claims

Second Circuit

Murphy Med. Assocs., LLC v. Yale Univ., No. 3:22-CV-33 (KAD), 2024 WL 988162 (D. Conn. Mar. 7, 2024) (Judge Kari A. Dooley). In March of last year the court granted the defendants’ motion to dismiss this action by plaintiff Murphy Medical Associates, LLC seeking reimbursement for COVID-19 diagnostic tests it provided to patients insured by Yale University’s medical benefit plans. However, the court gave Murphy leave to amend, cautioning Murphy that it “must provide allegations as to ‘the patients whose rights are being asserted, the alleged assignment of those rights, the specific plans under which Murphy Medical asserts claims, and whether Murphy Medical has exhausted their administrative remedies or whether such exhaustion would be futile.’” Murphy amended its complaint, prompting a new motion to dismiss from defendants. The court agreed with defendants that Murphy’s new complaint was again defective. Murphy alleged that it received assignment of benefit forms from “many” plaintiffs, that defendants’ plans did not prohibit such assignment, and attached a sample assignment of benefits form. This was not enough for the court, which deemed Murphy’s allegations “conclusory.” Murphy did not “provide enough specificity to give Defendants fair notice of whose rights Plaintiff purport to assert or the plans under which those rights derive.” The sample form was “insufficient to allow the Court to draw the inference that each beneficiary made a valid assignment.” The court also noted that Murphy’s complaint ignored an anti-assignment provision in the Yale Health Member plan document and ruled that defendants had not waived it. Furthermore, the amended complaint lacked adequate factual allegations that Murphy had exhausted its administrative remedies before filing suit, or that such exhaustion would have been futile. Murphy alternatively argued that its complaint passed muster because the Families First Coronavirus Response Act (“FCCRA”) and the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) effectively amended ERISA to allow for its claims. The court rejected this theory, ruling that FCCRA and CARES did not create a private right of action, and characterizing Murphy’s creative argument as “simply an attempted end run” around the court’s prior decision addressing these laws. In the end, the court concluded that Murphy’s amended complaint was an attempt to “sidestep” ERISA’s “well established” requirements by “seeking reimbursement for testing done on a massive scale, for individuals with a multitude of different benefit plans, who may or may not have assigned their ERISA benefits, and who may or may not have been allowed to assign their ERISA benefits. ERISA does not countenance such an effort[.]” Dismissal this time was with prejudice.

NYU Langone Hosps. v. 1199SEI Nat’l Benefit Fund for Health & Human Serv. Emps., No. 22 CIV. 10637 (NRB), 2024 WL 989700 (S.D.N.Y. Mar. 7, 2024) (Judge Naomi Reice Buchwald). Plaintiff sued two multi-employer benefit funds in New York state court, alleging that they committed breach of contract when they denied claims for the hospital stays of the newborns of three fund beneficiaries. The funds removed the action to federal court and filed a motion to dismiss. Plaintiff responded by arguing that the hospital stays were a covered maternity benefit under the Newborns’ and Mothers’ Health Protection Act of 1996 (“NMHPA”). The court was not impressed: “Whatever the merits of this contention, the Court is precluded from addressing it because plaintiff’s breach of contract claims are expressly preempted by ERISA.” The court noted that NMHPA was incorporated into ERISA, and thus any claims under it were governed by ERISA’s preemption provision. Plaintiff attempted to escape this conclusion by arguing that it was “simply seeking to enforce the terms of its own, separate contract with defendants.” However, the court ruled that plaintiff’s case law did not support this proposition. Furthermore, plaintiff’s claims “expressly challenge the scope of benefits provided to the Benefit Funds’ plan members and the Funds’ administration of their plans,” which meant that they “fall squarely within the scope of ERISA’s expansive preemption provision.” The court thus granted the funds’ motion to dismiss. The court also rejected plaintiff’s request for leave to amend its complaint for two reasons. First, plaintiff had already amended once, with knowledge of ERISA’s application, yet did not assert claims under ERISA. Second, the court ruled that amendment would be futile because the plans at issue included anti-assignment provisions precluding plaintiff from pursuing any claims under ERISA.

Redstone v. Empire HealthChoice HMO, Inc., No. 23-CV-2077 (VEC), 2024 WL 967416 (S.D.N.Y. Mar. 5, 2024) (Judge Valerie Caproni). Plaintiffs in this case are two surgeons who sued Empire HealthChoice HMO, Inc., the claims administrator of the ERISA plan of one of their patients, after Empire paid only $26,099.20 on a $671,723 claim for the first breast reconstruction surgery following the patient’s double mastectomy, and $7,2316.77 out of $131,234.22 on the second stage surgery. The doctors asserted claims for benefits under ERISA and state law claims for breach of contract, breach of implied contract, unjust enrichment, tortious interference, and third party beneficiary. Empire moved to dismiss the complaint in its entirety. The court’s analysis of the ERISA benefits claims turned on whether the plaintiffs had standing to sue based on their patient’s assignment of her claim for benefits, despite the anti-assignment provision in the plan document. The court concluded the answer was no, rejecting as “silly” the doctors’ claims that the anti-assignment clause was contradictory and unenforceable because it prohibited assignment without consent but did not define what was required to obtain consent. Although the language the court quoted did not state that any consent had to be in writing, the court concluded that the plan clearly required written consent, which the doctors had not obtained. Nor was the court convinced that Empire’s course of conduct in dealing with the doctors and partially paying the claims directly to them constituted a waiver of the anti-assignment provision. On this basis, the court dismissed all of the ERISA claims. Nevertheless, the court granted the plaintiffs an opportunity to amend their complaint despite defendants’ arguments that plaintiffs had the opportunity to do so at an earlier point in the litigation. Turning to the state law claims, the court concluded that all five depended on Empire’s payment obligations under the ERISA plan and therefore dismissed these claims with prejudice, concluding that they were preempted by ERISA’s broad preemption provision.   

AA Med. v. 1199 SEIU Benefit & Pension Fund, No. 21-CV-5239 (JS)(SIL), 2024 WL 964712 (E.D.N.Y. Mar. 5, 2024) (Judge Joanna Seybert). In this last provider case of the week (all from the Second Circuit, curiously), a surgical group sued for reimbursement of multiple claims for benefits under ERISA plans after the plans paid a fraction of one percent on billed charges for numerous surgeries and follow-up visits. Defendants moved to dismiss, arguing that the medical group failed to exhaust its administrative claims remedies under the union-sponsored healthcare plan, and that the complaint failed to allege that the fund denied benefits that were due to the patients. The court agreed with defendants that plaintiffs and their patients had failed to exhaust the required appeal steps spelled out in summary plan descriptions (SPDs) that defendants attached to their motion to dismiss, which the court concluded it could consider without converting the motion to dismiss into a motion for summary judgment. Plaintiffs, however, alleged that they had, in fact, appealed but that the fund informed them that they could not appeal and that this sufficed for exhaustion purposes. The court, however, found this conclusory and unsupported by plausible factual allegations in the complaint. The court likewise rejected plaintiffs’ contention that exhaustion was futile because they had been told by representatives of the plan that they could not appeal. Instead, the court agreed with defendants that, contrary to the allegations in the complaint, the SPDs do permit providers to appeal where authorization has been obtained from the plan and that the SPD also forbade reliance on telephone conversations. Concluding that there were no allegations in the complaint concerning such authorization, the court agreed with defendants that plaintiffs failed to make the requisite clear and positive showing of futility necessary to excuse the plan’s and ERISA’s exhaustion requirement. The court therefore dismissed the complaint but did so without prejudice.

Venue

Ninth Circuit

Plan Adm’r of the Chevron Corp. Ret. Restoration Plan v. Minvielle, No. 20-CV-07063-TSH, 2024 WL 923554 (N.D. Cal. Mar. 1, 2024) (Magistrate Judge Thomas S. Hixson). Just two weeks ago, in our February 21, 2024 edition, we reported on the court’s ruling in this interpleader action on a motion to transfer venue by two of the defendants and potential beneficiaries, Anne Minvielle and her husband. The Minvielles live in the Eastern District of Louisiana and wanted this case and a related case transferred there. The court, addressing a number of factors, denied the motion. The Minvielles promptly filed a motion for reconsideration which the court addressed in this order. The court observed that local rules required the Minvielles to obtain leave before filing such a motion, which they had not done, and thus denied on that ground. The court addressed the merits nonetheless, and again ruled against the Minvielles. The Minvielles focused their motion on potential witnesses, arguing that the court “failed to consider the witnesses they named in Louisiana,” and thus “the logical and legally correct thing to do is to transfer both cases to the Western District of Louisiana for consolidation in that district where the overwhelming number of witnesses (both doctors and lay witnesses) reside.” The court ruled that this was an inappropriate ground for moving for reconsideration because it did not represent a material difference in fact or law or an emergence of new material facts. Furthermore, the Minvielles admitted that their previous motion lacked specific detail regarding their witnesses, which could not be remedied by a reconsideration motion. In any event, the court reiterated that “there are potential witnesses in Louisiana, California, and London, and any choice of venue would be equally inconvenient to the witnesses not located in that venue.” Furthermore, “relevant evidence is likely found in at least this District, London, and Louisiana,” and “transfer to Louisiana does not serve the interests of justice because both [cases] have been pending here for some time, and this Court is likely positioned to resolve the disputes faster than a new court.” The court thus denied the Minvielles’ reconsideration motion.

Another slow week in ERISA World, sadly. We do expect things to pick up, as the Civil Justice Reform Act reporting period expires at the end of the month. As always, however, even though the numbers are down, the cases are still interesting. Read on for no fewer than three separate cases discussing application of the Mental Health Parity and Addiction Equity Act, the latest installment in a class action alleging ESOP skulduggery at the Casino Queen Hotel & Casino in St. Louis, and whether a prisoner can sue an insurer for inflicting emotional distress by mishandling his life insurance claim, among other decisions.

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

Attorneys’ Fees

Tenth Circuit

K.D. v. Anthem Blue Cross & Blue Shield, No. 2:21-CV-343-DAK-CMR, 2024 WL 840659 (D. Utah Feb. 28, 2024) (Judge Dale A. Kimball). In September of 2023, the court ruled that defendant Anthem abused its discretion in denying the plaintiffs’ claim for mental health benefits for residential treatment, and remanded the case to Anthem for further evaluation. (This decision was Your ERISA Watch’s case of the week in our September 27, 2023 edition.) The court also invited plaintiffs to file a motion for attorney’s fees, which was decided in this order. Plaintiffs’ counsel Brian S. King asked the court to award him his national rate of $600/hour, while Samuel Martin Hall, an associate in Mr. King’s office, requested a rate of $325. The court chose to reduce both rates, ruling that “this District has consistently determined that the application of a local rate is appropriate in ERISA cases,” and “a $500 per hour rate is now appropriate for Mr. King’s skill and experience level in an ERISA case in the Salt Lake City legal market.” As for Mr. Hall, he was previously awarded $250/hour by other courts in the district, but “he has gained three years of experience since those prior cases and with that increased experience and skill working on ERISA cases, the court finds that an hourly rate of $300 is appropriate for Mr. Hall.” The court also reduced, without objection, the number of hours counsel expended by 5.7 because that time was billed prior to the drafting of the complaint. As a result, Mr. King was awarded 63 hours at $500 per hour, while Mr. Hall was awarded 33.6 hours at $300 per hour, for a total of $41,580. Plaintiffs also recovered $400 in costs. The court then “administratively close[d] the case pending the conclusion of the remand process.”

Class Actions

Eleventh Circuit

Lopez v. Embry-Riddle Aeronautical Univ., Inc., No. 6:22-CV-1580-PGB-LHP, 2024 WL 775213 (M.D. Fla. Feb. 26, 2024) (Judge Paul G. Byron). Plaintiff Guillermina Lopez is a participant in Embry-Riddle Aeronautical University’s retirement plan. She alleges in this putative class action that Embry violated its fiduciary duties under ERISA by paying excessive recordkeeping fees and expenses to the plan’s third-party administrator, TIAA. She filed a motion for class certification, which Embry opposed on the grounds that (1) Lopez did not have standing, (2) her claims conflicted with other class members, (3) her claims were not typical, and (4) she lacked adequate knowledge to represent the class. The court agreed that Lopez did not have standing, ruling that she “fails to articulate in her Motion any injury in fact that she sustained.” Furthermore, the Court noted that Lopez did not respond to declarations from Embry stating that Lopez’s allegations were incorrect because Embry did not pay per-participant recordkeeping fees, Lopez herself was not economically harmed because she had not paid the fees alleged in the complaint, and she had not invested in any of the challenged funds. The court also agreed with Embry that because it calculated plan fees with an asset-based approach instead of on a per-participant basis, the claims of Lopez’s proposed class were antagonistic to the claims of other plan participants who paid different fees or who may have benefited under the current system. Having decided these issues against Lopez, the court dispensed with addressing Embry’s other arguments and denied Lopez’s class certification motion.

Disability Benefit Claims

Fifth Circuit

Black v. Unum Life Ins. Co. of Am., No. 3:22-CV-2116-X, __ F. Supp. 3d __, 2024 WL 873536 (N.D. Tex. Feb. 29, 2024) (Judge Brantley Starr). Plaintiff Catherine Black successfully applied for long-term disability benefits under an employee benefit plan insured by defendant Unum Life Insurance Company of America, but after several years of payments, Unum terminated her benefits in 2021, determining she was no longer disabled. Black sued and the parties filed cross-motions for summary judgment. Black contended that she did not receive a full and fair review, as required by ERISA, because Unum “denied her claim based on a medical judgment, but it failed to consult with a qualified health professional on appeal.” Unum argued that its denial “was not based on a medical judgment; rather, it denied Black’s claim because she no longer had any restrictions that prevented her from performing sedentary work.” The court, relying on a Fifth Circuit decision, agreed with Black that Unum’s determination was based on a medical judgment because “Unum consulted Black’s doctors in order to assess her medical conditions and her capability to perform sedentary work.” The court stated that Unum’s attempt to distinguish the appellate decision “just splits hairs.” The court further agreed with Black that Unum “failed to consult with a health care professional who had appropriate training and experience in the field of medicine involved in the medical judgment when deciding Black’s administrative appeal.” Unum violated this requirement because its reviewing nurse “essentially gave deference to the initial denial of Black’s claim,” and “was not a qualified health care professional to perform the consultation.” Unum contended that the nurse was merely summarizing the opinions of Black’s own physicians and was not making her own medical determination. However, the court ruled that in doing so “Unum relied on the same physicians to initially deny Black’s claim and to deny her appeal. ERISA requires more. Unum must consult a different physician on appeal than those it relied upon during its initial denial. Otherwise, the administrative appeal process is prejudicial.” Because Unum did not give Black a full and fair review, the court ruled that Unum’s decision was procedurally non-compliant. However, “[P]rocedural violations of ERISA generally do not give rise to a substantive damages remedy.” Thus, the court remanded the case to Unum “to conduct a full and fair review of Black’s disability claim consistent with ERISA’s procedural requirements as explained in this order.”

ERISA Preemption

Fourth Circuit

Davis v. Horton, No. CV PJM-23-0078, 2024 WL 839045 (D. Md. Feb. 27, 2024) (J. Peter J. Messitte). Plaintiff Bryant Davis is an inmate at Jessup Correctional Center, a prison in Maryland. He brought this action against numerous defendants in connection with the death of his wife. He alleged claims for intentional infliction of emotional distress (IIED) and deprivation of constitutional rights in connection with his inability to arrange for the burial of his wife. Davis alleged that two of the defendants, Hartford Life and Accident Insurance Company and Fidelity Workplace Services, failed to respond to his expedited request for claim forms for life insurance benefits, which added to his distress. The defendants all filed motions to dismiss. The court ruled that Davis’ IIED claim was not plausible because “[t]he conduct alleged in the complaint consists of the refusal to allow Davis access to a telephone over a matter of weeks and the failure to process forms,” which was not “outrageous” or “extreme” enough to constitute IIED under Maryland law. Furthermore, Davis’ IIED claim against Hartford and Fidelity was preempted by ERISA because it “derives from their alleged mishandling of his claim for his wife’s life insurance policy,” which was an employee benefit plan sponsored by Davis’ wife’s employer, General Dynamics. As a result, the court granted the defendants’ motions to dismiss.

Medical Benefit Claims

Second Circuit

M.R. v. United Healthcare Ins. Co., No. 1:23-CV-4748-GHW, 2024 WL 863704 (S.D.N.Y. Feb. 29, 2024) (Judge Gregory H. Woods). Plaintiff M.R., individually and on behalf of M.R.’s stepdaughter, J.S., brought this action alleging that defendant United unlawfully denied M.R.’s claims for health insurance benefits after J.S.’s stay at a wilderness therapy program. M.R. sought payment of benefits and contended that the denial violated the Mental Health Parity and Addiction Equity Act. M.R. also sought statutory penalties under ERISA against defendant Pfizer Inc. for its failure to provide plan documents upon request. Defendants filed a motion to dismiss, which Magistrate Judge Gary Stein recommended that the court deny, except to the extent the statutory penalty claim was asserted against any party other than Pfizer. (Your ERISA Watch covered this report in our December 6, 2023 edition.) Defendants were unhappy with the report and recommendation and filed objections which were decided in this order. The court agreed with the report that M.R.’s complaint was timely, even though it was filed after the expiration of the plan’s contractual limitation period, because United failed to comply with ERISA regulations requiring it to notify M.R. of the limitation. Defendants contended that M.R. knew of the time limit and thus was not entitled to equitable tolling of the deadline, but the court ruled that the concept of equitable tolling did not apply: “equitable tolling is not ‘an obstacle, or even relevant, to [the plaintiff’s] claim.’” Instead, defendants’ regulatory violation waived the deadline and thus it was unenforceable. Next, the court ruled that M.R. had properly stated a Parity Act violation. M.R. “adequately pleaded the third element of her Parity Act claim by alleging that ‘a mental-health treatment is categorically excluded while a corresponding medical treatment is not.’” Specifically, M.R. alleged that, in practice, United’s “experimental or investigational” exclusion created “a categorical exclusion ‘for even state-licensed wilderness therapy programs but not for analogous forms of inpatient medical/surgical treatment.’” The court disagreed with United’s argument that the court could find as a matter of law that wilderness therapy is not analogous to skilled nursing facilities for the purpose of the Parity Act. That question “is an issue of fact” and thus could not be a basis for dismissing M.R.’s claim. Finally, the court rejected Pfizer’s argument for dismissing the statutory penalty claim. Pfizer contended that M.R. sent the request to the “plan sponsor,” not the “plan administrator,” but the court agreed with the magistrate judge that these were the same entity and thus this was a “hyper-technical” distinction without a difference. As a result, the court “accepts and adopts the thorough and well-reasoned R&R in its entirety[.]”

Tenth Circuit

S.B. v. BlueCross BlueShield of Tex., No. 4:22-CV-00091, 2024 WL 778054 (D. Utah Feb. 26, 2024) (Judge David Nuffer). Plaintiff S.B. is a participant in an ERISA-governed medical benefit plan and the father of R.B., who was admitted to Solacium Sunrise, a residential treatment center (RTC) for adolescent girls with mental health, behavioral, and substance abuse problems. Plaintiffs submitted claims for these benefits to the plan’s insurer, defendant BlueCross, which denied them on the ground that Sunrise did not have 24-hour on-site nursing, which the plan requires for RTCs. Plaintiffs filed this action alleging two claims, one for plan benefits under ERISA and another for violation of the Mental Health Parity and Addiction Equity Act. BlueCross responded with a motion to dismiss both claims. Plaintiffs argued that the plan’s nursing requirement did not apply to RTCs for children and adolescents, but the court ruled that this interpretation was not plausible because it was “directly contradicted by the express terms of the plan,” which applied the nursing requirement to all RTCs. Plaintiffs also contended that they did not receive a full and fair review from BlueCross. The court found these allegations plausible, but ruled that they were irrelevant because the plan’s nursing requirement barred coverage and thus there was no prejudice. The court was slightly more sympathetic to plaintiffs’ Parity Act claim. Plaintiffs contended that the plan exceeded generally accepted standards of care (GASC) with its RTC nursing requirement, but did not impose the same requirement on comparable medical and surgical facilities, and thus there was a parity violation. The court ruled that this was sufficient to get past the pleading stage. However, the court noted that plaintiffs’ Parity Act claim was on thin ice, because BlueCross had submitted a document from the American Academy of Child & Adolescent Psychiatry setting forth GASC for RTCs stating that one of the two ways RTCs can conform with GASC is by having 24-hour onsite nursing. Thus, if on-site nursing is an element of GASC, the plan did not exceed GASC by requiring it for RTCs, and the Parity Act claim would fail. However, the court refused to consider this document in ruling on the motion because it was outside the pleadings. Thus, the court granted BlueCross’ motion to dismiss plaintiffs’ claim for benefits, but “Plaintiffs’ Count II Parity Act claim survives” for now.

J.W. v. United Healthcare Ins. Co., No. 2:23-CV-193-DAK-DBP, 2024 WL 840714 (D. Utah Feb. 28, 2024) (Judge Dale A. Kimball). Plaintiff J.W. is a participant in an ERISA healthcare plan that denied claims for coverage of his child’s mental health treatment at two inpatient facilities: Open Sky Wilderness Therapy and Waypoint Academy, the former because it was determined to exclude experimental and investigational treatment and the latter because it was determined not to qualify as residential treatment. J.W. sued his employer, S&P Global Inc. (“SPGI”), the plan itself, and United Healthcare Inc. (“United”), the claims administrator, asserting three claims: (1) a claim for benefits; (2) a claim for violation of the Mental Health Parity Act; and (3) a claim for penalties for failure to provide requested plan documents. Defendants moved to dismiss, and the court partially granted and partially denied the motions. Turning first to United’s motion to dismiss the claim for penalties, the court determined that because United was not the plan administrator, the claim for penalties was not properly asserted against it. It thus dismissed United as a defendant with respect to this count, but declined to dismiss the claim on the merits to the extent it was asserted against the administrator. But that presented a separate problem, as the plaintiff had failed to assert the claim against the named plan administrator – the U.S. Benefits Committee. Instead, the plaintiff insisted that because the Committee was an informal subdivision of SPGI, it was sufficient that he had named SPGI as a defendant. The court disagreed, holding that neither SPGI nor the plan were proper defendants as to this claim, just as United was not. However, the court granted plaintiff 30 days to amend to name the Committee as the defendant with respect to the claim for penalties. As to the claim for benefits, the court held that because SPGI did not control the administration of the plan or its benefits, it was not a proper defendant for that claim and the court accordingly granted SPGI’s motion to dismiss it as defendant on this claim. Turning finally to the Parity Act claim, the court dismissed SPGI as a defendant based on plaintiff’s concession that this claim was not properly asserted against the company. The court, however, disagreed with the plan’s contention that the claim was duplicative of the benefits claim, noting that plaintiff sought injunctive relief with respect to that claim, but agreed with the plan that the complaint did not specifically address whether it was asserting a facial or as-applied challenge. Again, however, the court granted plaintiff the opportunity to amend the complaint to more clearly articulate “his Parity Act claims against the Plan.”             

Pension Benefit Claims

Seventh Circuit

Hensiek v. Bd. of Dirs. of Casino Queen Holding Co., No. 20-cv-377-DWD, 2024 WL 773633 (S.D. Ill. Mar. 6, 2023) (Judge David W. Dugan). On several occasions, Your ERISA Watch has previously reported on developments in this putative class action brought by former employees of the Casino Queen Hotel & Casino, a riverboat casino, challenging the creation of and subsequent transactions involving the Casino Queen’s employee stock ownership plan (“ESOP”). The facts are complicated and were covered at length when we wrote about two prior decisions declining to dismiss the complaint in our March 15, 2023 edition. In a nutshell, plaintiffs allege that the owners of the company came up with the idea of creating an ESOP to buy the company after trying unsuccessfully for six years to sell the company to unaffiliated third parties. They did so in several stages. First, in October 2012, they created a holding company for Casino Queen. Then, the selling shareholders exchanged their Casino Queen Stock for the holding company’s stock and placed themselves on the newly formed board of the holding company. Two months later, in December 2012, the shareholders and the holding company established the Casino Queen ESOP and facilitated the terms of the ESOP stock purchase of the holding company’s outstanding stock for $170 million. In order to finance this transaction, the ESOP borrowed $130 million from Wells Fargo, $15 million from an unnamed third party, and $25 million from the defendants at the “draconian interest rate” of 17.5%. Following the 2012 stock purchase, the ESOP proceeded to sell all of the Casino Queen’s real estate to a third party gambling company, Gaming and Leisure Properties, Inc., for $140 million. Plaintiffs alleged that the real value of these assets totaled only about $12.1 million. Then, Casino Queen leased back the property it had just sold for $140 million for the hyper-inflated price of $210 million, to be paid over 15 years (for more annually than what plaintiffs claimed the properties were worth). In any event, following the court’s denial of the motion to dismiss, the plaintiffs filed an amended complaint adding several new defendants whom they claim were former shareholders of the company and parties-in-interest for purposes of ERISA’s prohibited transaction provisions. Two of the original defendants moved to dismiss the complaint again as untimely, but this time asserted that the untimeliness was jurisdictional. The district court, however, disagreed and concluded that the statute of limitations in ERISA Section 1113 was not jurisdictional. Moreover, the court agreed with plaintiffs that it should not consider additional evidence submitted by the two moving defendants or convert their motion to dismiss into a motion for summary judgement but should instead allow plaintiffs more time for discovery into whether the fraud or concealment exception to ERISA’s general six-year statute of limitations applies. Another of the original defendants moved for judgment on the pleadings based on more than two dozen documents he attached to his answer. Agreeing with plaintiffs that the documents had not been authenticated and might not even be relevant, the court refused to consider them. Moreover, even if it were to consider them, the court held that these documents were insufficient to establish “beyond doubt” that plaintiffs could not prove any set of facts to support their claims and thus did not support judgment on the pleadings for this defendant or that the court should convert the motion to a motion for summary judgment. Finally, the court dismissed, without prejudice, the motions to dismiss filed by certain third-party defendants, granting leave to refile by March 27. So, it appears that this lawsuit will proceed full steam ahead.

Pleading Issues & Procedure

Second Circuit

Cudjoe v. Bldg. Indus. Elec. Contractors Ass’n, No. 21-CV-05084 (DG) (ST), 2024 WL 866070 (E.D.N.Y. Feb. 28, 2024) (Judge Diane Gujarati). Plaintiff Martin Cudjoe is a participant in a number of multi-employer (Taft-Hartley) plans (the “Benefit Funds”), which include a pension fund, an annuity fund, a welfare benefit fund, and an apprenticeship fund. He claimed that under both the Taft-Hartley Act and ERISA the Benefit Funds were required to be jointly administered by an equal number of union and management trustees, but were instead operated only by management-side trustees. He also claimed that the Trustees had mismanaged the Benefit Funds by paying themselves over $1 million in plan assets, in violation of ERISA’s prohibited transaction rules. He brought a six-count putative class action complaint against various union entities and individuals asserting claims under both the Taft-Hartley Act and ERISA. Defendants filed motions to dismiss under both Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6). Addressing the 12(b)(1) motion, the court held that Mr. Cudjoe failed to establish Article III standing and therefore dismissed the complaint in its entirety. Specifically, the court found that Mr. Cudjoe failed to establish an injury in fact by asserting, without more, that had it not been for the mismanagement of Fund assets, the participants, himself included, would have received richer benefits. The court found the Supreme Court’s decision in Thole v. U.S. Bank N.A., 140 S. Ct. 1615 (2020) to be “instructive, but not dispositive.” The court concluded that even with respect to one plan, the Annuity Fund, which was a defined contribution pension plan, Mr. Cudjoe’s claim should still be dismissed because the complaint did not explain how “the alleged mismanagement necessarily affected Plaintiff’s benefits with respect to” that Fund. The court therefore granted the motion to dismiss without leave to amend as plaintiff had previously been afforded the opportunity to do so.

Fourth Circuit

Nordman v. Tadjer-Cohen-Edelson Assocs., Inc., No. DKC 21-1818, 2024 WL 895122 (D. Md. March 1, 2024) (Judge Deborah K. Chasanow). Plaintiff, a former employee of Tadjer-Cohen Edelson Associates (TCE) filed suit against TCE and others seeking additional benefits under multiple TCE-sponsored retirement plans, including the PS Plan, the TCE Employee Stock Ownership Plan (ESOP), and a profit sharing plan. TCE is the administrator of these plans with full discretionary authority. In 1988, plaintiff signed waivers of his rights to receive pension benefits under the PS Plan and under a profit sharing plan. The court previously dismissed some of the eight counts and two of the plaintiffs. Plaintiff missed his deadline for filing a motion for summary judgement and a little over a week later filed a motion for leave to file a motion to extend the deadline for filing and then filed the motion, requesting a one-month extension, all of which defendants opposed. Even so, Plaintiff filed a motion for partial summary judgment, albeit a day late even assuming his requested extension was granted. Defendants also cross-moved for summary judgment, apparently in a timely fashion, and, after defendants filed a reply to plaintiff’s opposition, plaintiff also filed a motion to file a sur-response (and then filed motions to extend the briefing on this). With respect to plaintiffs’ motions to extend, the court found equities in both directions and ultimately granted the motions, finding no utility to striking plaintiff’s partial summary judgment motion as untimely because it covered the same ground as defendants’ motion. However, the court was not so lenient with respect to the motions regarding the sur-reply, which the court denied. The court also considered all of the documents attached by plaintiff to his motion, with the exception of a handwritten note, the contents of which he could not authenticate and which he did not claim to have written. Clearing these procedural hurdles, the court proceeded to consider summary judgment, which largely turned from the defendants’ perspective, on whether plaintiff had the right to revoke the waiver and whether he did so by applying for and being accepted as a participant. The court concluded that the cited evidence appeared to conflict both on whether the waivers are revocable and on whether plaintiff later joined the plans. Consequently, the court found a material dispute on this issue and refused to grant summary judgment to either side on this basis. The court turned to Count IV of the complaint, which requests $394,900 in penalties for alleged failures and delays in providing requested documents. The court found that plaintiff had never made written requests for some of the documents, and that with respect to the 2016-17 PS Plan document and ESOP SARs, defendants produced them in a timely manner upon written requests. However, the court found that defendants did not prove that they met their obligations to produce these documents for the 2017-18 and 2018-19 plan years after plaintiff made a written request, and thus granted summary judgment as to liability on this part of Count IV, but deferred imposition of a monetary penalty until final disposition of the whole case. Finally, the court concluded that this count was timely asserted because the most analogous statute of limitations in Maryland was the three-year period, not the one-year period for which defendants had advocated.  

Provider Claims

Eleventh Circuit

Griffin v. Blue Cross Blue Shield Healthcare Plan of Ga., Inc., No. 22-14187, __ F. App’x __, 2024 WL 889560 (11th Cir. Mar. 1, 2024) (Before Circuit Judges Rosenbaum, Grant, and Black). W.A. Griffin is a dermatologist, proceeding pro se. This is one action among many she has filed in which she contends that various defendants have breached their fiduciary duties under ERISA by underpaying medical benefit claims. The district court granted defendants’ motion for summary judgment, concluding that “(1) all of the patient plans at issue contained valid anti-assignment provisions; (2) ERISA permits, as a matter of federal common law, such provisions regardless of any state laws to the contrary; and (3) Griffin lacked statutory standing to bring her suit because she was not a beneficiary under her patients’ plans.” In this unpublished per curiam decision, the Eleventh Circuit affirmed. Citing a recent Eleventh Circuit decision in which Dr. Griffin was also the plaintiff, the court stated, “We have repeatedly rejected identical or nearly identical arguments by Griffin in published and unpublished opinions.” The court ruled that there were “valid unambiguous anti-assignment provisions in each plan document, so the district court did not err in finding those provisions barred Griffin’s patients from assigning their entitlement to plan benefits to her.” Griffin argued that this conclusion was “at odds” with two Supreme Court cases, Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724 (1985), and Kentucky Ass’n of Health Plans, Inc. v. Miller, 538 U.S. 329 (2003). However, the Eleventh Circuit noted that its precedents upholding anti-assignment provisions post-dated those cases and thus Griffin’s arguments were “foreclosed by the prior panel precedent rule.” In any event the court ruled that these two cases did not help Griffin, because both involved analyzing when a state law is an insurance regulation for the purposes of ERISA preemption, which was not the issue here. Thus, the Eleventh Circuit affirmed the judgment against Griffin.

Severance Benefit Claims

Seventh Circuit

Pool v. The Lilly Severance Pay Plan, No. 1:23-cv-00631-JMS-MKK, 2024 WL 866580 (S.D. Ind. Feb. 29, 2024) (Judge Jane Magnus-Stinson). Scott Pool, a participant in a severance plan sponsored by his former employer Eli Lilly, sued Lilly and the plan claiming he had been underpaid benefits from the plan and that the company had breached its fiduciary duties in miscalculating his benefits. The dispute centered around the meaning of the term “Service” in the plan, and, in particular, whether only Mr. Pool’s second period of employment counted in calculating his years of service. Essentially, applying a deferential standard of review to Lilly’s interpretation of the plan language, the court found it reasonable that Lilly interpreted the term “Service” to include “only years of continuous employment after the date of reemployment,” as the plan apparently expressly stated. Nor did Lilly breach its fiduciary duty by calculating and paying Mr. Pool benefits in accordance with this definition. Therefore, the court granted summary judgment in favor of defendants.

It has been a slow week here in ERISA World. Slow does not mean boring, however. Interestingly, in two of the cases we report on this week, courts refused to award attorneys’ fees to plaintiffs despite their partial or total success on the merits. In two other cases, courts rejected arguments that plaintiffs had failed to exhaust their plan administrative remedies prior to filing suit. And, in another decision, defendants prevailed after a nine-day bench trial in a case challenging the prudence and loyalty of fiduciaries in the selection of target date funds for a 401(k) plan. Plaintiffs, on the other hand, survived motions to dismiss in a case presenting numerous fiduciary and prohibited transaction challenges to a series of ESOP transactions. One plaintiff also won medical benefits after getting kicked by a bull calf. Finally, did you know that demolishing a structure and removing its asbestos counts as “building and construction” under ERISA? In short, there is something for everyone this week.

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

Arbitration

Seventh Circuit

Harris v. Paredes, No. 3:23-CV-50231, 2024 WL 774874 (N.D. Ill. Feb. 26, 2024) (Judge Iain D. Johnston). Plaintiff Nichole Harris brought this putative class action against various defendants engaged in administering the Suter Company Employee Stock Ownership Plan. She alleges that the plan vastly overpaid when it bought 100,000 shares of stock from the Suter family for a price exceeding $63 million, which resulted in breaches of fiduciary duties and prohibited transactions under ERISA. Defendants filed a motion to compel arbitration. Curiously, the plan had amended its arbitration clause in August of 2023, just after Harris filed suit. The court concluded that the amended arbitration clause was valid and binding, and that it covered Harris’ ERISA Section 502(a)(2) claim, noting that the Federal Arbitration Act “explicitly contemplates the enforceability of agreements to arbitrate ‘existing controvers[ies].’” The court further ruled that the “effective vindication” doctrine, which “forbids compulsory arbitration when the statute authorizing a claim allows a given remedy, but the arbitration agreement disallows it,” did not apply. This was so because the arbitration clause, which required that claims be brought “in an individual capacity and not on a class, collective, or group basis,” did not forbid Harris from pursuing her 502(a)(2) claim in arbitration. In so ruling, the court rejected defendants’ argument that Harris could only recover in arbitration for injuries to her individual account, because Section 502(a)(2) allows for plan-wide remedies. The court thus granted defendants’ motion to compel arbitration, but not on the terms they desired.

Attorneys’ Fees

Tenth Circuit

Ramos v. Schlumberger Grp. Welfare Ben. Plan, No. 22-CV-0061-CVE-JFJ, 2024 WL 729220 (N.D. Okla. Feb. 22, 2024) (Judge Claire V. Egan). Previously, the court remanded this action for ERISA-governed short-term disability benefits to Cigna Group Insurance, the defendant plan’s claim administrator, because Cigna “did not explain the rationale or reasoning for the denial of plaintiff’s claim” during his second voluntary appeal. Plaintiff Ramon Ramos moved for attorney’s fees, which the court ruled on in this order. The court agreed that “a remand order can qualify as ‘some degree of success on the merits’ in some cases,” which would meet the Supreme Court’s test for awarding fees, but here “the remand order in this case was strictly a procedural ruling that cannot support an award of attorney fees[.]” Ramos argued that the court’s remand order was a “substantive ruling that substantially increases his chances of receiving benefits,” and also allowed him to introduce additional information and evidence in support of his claim. The court rejected these arguments, however, stating that it “simply identified the plan administrator’s failure to provide a sufficient explanation…and remanded the case to supply the missing rationale and reasoning. The Court expressed no opinion on the merits of plaintiff’s ERISA claim and nothing in the Court’s ruling makes it more or less likely that the plan administrator will award plaintiff STD benefits on remand.” Furthermore, “the consideration of additional evidence was merely an incidental side-effect of the Court’s remand order, and it is unclear whether this evidence will have an impact on a judicial review of plaintiff’s ERISA claim.” The court also ruled that Ramos had not met the Tenth Circuit’s test for awarding fees because there was no bad faith, no deterrent effect because the plan had been amended to avoid a repeat occurrence (the right to a second voluntary appeal had been eliminated), and there was no ruling on the merits. Thus, the court denied Ramos’ motion. However, the court noted that Ramos was not forever foreclosed from seeking fees. If Ramos is ultimately successful on remand, “he may file a motion to recover all of the attorney fees he has incurred in this case.”

Breach of Fiduciary Duty

Fifth Circuit

Spence v. American Airlines, Inc., No. 4:23-CV-00552-O, 2024 WL 733640 (N.D. Tex. Feb. 21, 2024) (Judge Reed O’Connor). Plaintiff Bryan Spence is an American Airlines pilot and a participant in American’s 401(k) plan. He alleges that the defendants, fiduciaries of the plan, have violated ERISA by breaching their duties of loyalty and prudence, and their duty to monitor. Spence contends that defendants are investing plan assets in environmental, social, and governance (ESG) funds which “pursue non-financial and nonpecuniary ESG policy goals through proxy voting and shareholder activism[.]” These funds “focus[] on socio-political outcomes instead of exclusively on financial returns,” and thus defendants “violated their fiduciary duties to act in the Plan participants’ financial interests[.]” Defendants filed a motion to dismiss, which was decided in this order. The court ruled that Spence had plausibly alleged a claim for breach of the duties of prudence and monitoring because he had pleaded that ESG funds had underperformed other funds in the market yet were retained by defendants in the plan. Defendants contended that Spence had not provided a “meaningful benchmark” for comparison, but the court noted that the Fifth Circuit had not yet imposed a “performance-benchmark requirement,” and ruled that “requiring a benchmark for measuring performance is not required at this stage given the inherent fact questions such a comparison involves.” As for Spence’s duty of loyalty claim, defendants acknowledged that American was committed to ESG initiatives, but only under its “corporate hat” which was different from its “fiduciary hat.” Defendants further argued that there was “no plausible basis for suggesting that investment managers were motivated by anything but financial aims.” The court rejected this argument, however, ruling that this issue was “a fact question that is not appropriate to resolve at this stage.” Furthermore, according to the court, Spence had “articulate[d] a plausible story: Defendants’ public commitment to ESG initiatives motivated the disloyal decision to invest Plan assets with managers who pursue non-economic ESG objectives through select investments that underperform relative to non-ESG investments, all while failing to faithfully investigate the availability of other investment managers whose exclusive focus would maximize financial benefits for Plan participants.” Thus, the court denied defendants’ motion in its entirety.

Ninth Circuit

Hormel Foods Corp. Hourly Employees’ Pension Plan v. Perez, No. 1:22-CV-00879-JLT-EPG, 2024 WL 773153 (E.D. Cal. Feb. 26, 2024) (Judge Jennifer L. Thurston). Hormel’s pension plan for hourly employees paid $20,000 in pension benefits to a woman named Marie E. Perez. Perez signed a form certifying her name, attesting that she was not currently employed by Hormel, and including the last four digits of her Social Security number. There was only one problem: it was the wrong Marie E. Perez. Hormel asked for the money back, and when Perez refused, it sued Perez under ERISA Sections 502(a)(2) and (a)(3). Hormel then moved for default judgment on its (a)(3) claim when Perez failed to answer. The magistrate judge recommended denying the motion, concluding that Perez was not a fiduciary under ERISA and thus could not be held liable. (Your ERISA Watch reported on this decision in its October 18, 2023 edition.) Hormel objected, but in this order the district court judge adopted the magistrate’s recommendation in full. Hormel argued that “the proper focus should be on whether the defendant knowingly accepted and retained plan money the defendant was not entitled to recover,” but the court did not accept this framing: “Defendant was not a Plan participant and had no reason to know of or understand the Plan’s benefits or restrictions, nor did she have any reason to believe or understand that she might be considered a fiduciary.” Thus, because she was not a fiduciary, she could not have breached any fiduciary duties under Section 502(a)(3). Hormel contended that if the magistrate’s recommendation was accepted, “a criminal could knowingly and intentionally hack into an ERISA pension plan’s bank account, steal billions, and face no ERISA liability,” but the court was unimpressed: “the determination that Perez is not subject to ERISA remedies, ignores the existence of non-ERISA remedies and criminal sanctions available under these circumstances.” The court thus denied Hormel’s motion and dismissed the action.

Lauderdale v. NFP Retirement, Inc., No. 8:21-CV-00301-JVS-KES, 2024 WL 751005 (C.D. Cal. Feb. 23, 2024) (Judge James V. Selna). This is a class action by participants of a multi-employer 401(k) retirement plan who allege that the plan sponsor, Wood Group U.S. Holdings, and its investment manager, flexPATH Strategies, LLC, breached their fiduciary duties under ERISA by imprudently investing in flexPATH’s “target-date funds” (TDFs). The court held a nine-day bench trial in March of 2023, and this lengthy ruling represents the court’s findings of fact and conclusions of law. The court first addressed the duty of loyalty, finding that flexPATH’s witnesses were credible, that they genuinely believed that their investment decisions were in the best interests of plan participants, and that flexPATH did not benefit financially from its TDF fund selection. While it was true that flexPATH viewed the Wood plan as a “$900 million opportunity,” the court stated that a “profit motive is not unlawful in and of itself…. There is nothing disloyal about an investment manager trying to obtain new business.” Second, the court addressed the duty of prudence. Plaintiffs complained that flexPATH implemented its funds without “conduct[ing] a quantitative and qualitative evaluation of available TDFs,” but the court ruled that flexPATH’s previous research and investigation was sufficient to demonstrate that the funds were appropriate for the Wood plan. flexPATH also “continually reviewed and analyzed the structure, design, and performance” of the TDFs. The court did not agree that the TDFs underperformed compared to other funds, but to the extent they did, the court ruled that this was because they were designed to be risk-averse, and in any event such underperformance only lasted a brief period, which was insufficient to warrant a change. As for Wood, the court found that its choice of flexPATH and its TDFs was reasonable because the funds “provided broad exposure to low-cost, BlackRock Index funds, their diversified holdings helped mitigate risk in fluctuating market conditions over a long period of time, and they had naming conventions that were easy for Plan participants to understand.” Third, the court ruled that no prohibited transactions had occurred. The court found that flexPATH did not choose its own TDFs for “marketability” or “seed money” purposes, as plaintiffs claimed, or that any increase in its assets after Wood selected it led to such self-dealing. Finally, the court ruled that Wood’s duty to monitor was derivative of its duty of prudence, and thus Wood prevailed on that claim as well. In any event, the court ruled that Wood acted reasonably because the TDFs “were performing as expected given the inflation period” and Wood “appropriately considered and evaluated the reasoning behind the underperformance.” The court thus found in favor of defendants on all of plaintiffs’ claims, and requested a proposed judgment from defendants.

Disability Benefit Claims

Fourth Circuit

Aisenberg v. Reliance Standard Life Ins. Co., No. 1:22cv125 (DJN), 2024 WL 711608 (E.D. Va. Feb. 22, 2024) (Judge David J. Novak). This decision awarding disability benefits to an attorney who underwent a double bypass to treat his heart disease demonstrates two things that likely will come as no surprise to our audience: (1) attorneys, particularly those who work in the cyber-security department of a defense contractor, have stressful jobs; and (2) it doesn’t take a brain surgeon (or even a cardiologist) to know that high stress is dangerous for those suffering from serious heart disease. This case was previously before another judge in the Eastern District of Virginia who determined that Reliance Standard Life Ins. Co. (“Reliance”) abused its discretion in not considering Mr. Aisenberg’s risk of future harm if he were to return to work in his high stress job at the defense contractor, MITRE Corp., but agreed with Reliance that his normal occupation was that of a general “attorney,” rather than a cyber-security counsel, as Mr. Aisenberg had argued. In light of these holdings, the prior judge remanded the case to Reliance to determine whether there were less stressful jobs as an attorney available in the economy and, if not, the risk of future harm if Mr. Aisenberg were to return to a high stress job. Strangely, on remand, Reliance arranged for a labor market study on the job demands not of a general attorney, the category it had previously and successfully fought for, but for a business and financial counsel. This study described such stressful things as “crisis management” protecting “classified information,” and giving advice about terrorism, as among the material job duties of such a position. Concluding that Reliance was bound by its own study, the court had no problem concluding that any such position would be at least as stressful as the job Mr. Aisenberg held at the time of his bypass surgery. The court likewise had no trouble concluding, as Mr. Aisenberg’s own doctors had, and as supported by four studies he submitted, that working in a high stress job would be risky for him, despite two medical opinions submitted by Reliance that seemed to suggest that the science was out on the effects of stress on those suffering from serious heart conditions. In light of these findings, the court concluded that Reliance abused its discretion by ignoring the medical opinions of Mr. Aisenberg’s three treating physicians, not engaging with multiple studies supporting the risk to plaintiff, and failing to consider the risk of future harm despite the prior judge’s remand for just that purpose. The court therefore awarded benefits. However, despite Mr. Aisenberg’s resounding victory on the merits, the court declined to award him attorneys’ fees, concluding that only the “ability to pay” factor had been met.          

Exhaustion of Administrative Remedies

Ninth Circuit

Ayres v. Life Ins. Co. of N. Am., No. 3:23-CV-05376-DGE, 2024 WL 707454 (W.D. Wash. Feb. 21, 2024) (Judge David G. Estudillo). This is an action for long-term disability benefits under an ERISA-governed benefit plan. Defendant LINA responded to Jesse Ayres’ complaint by filing a motion for judgment on the pleadings. LINA contended in its motion that Mr. Ayres had failed to exhaust his administrative remedies under the plan and thus was barred from bringing his action. However, the court, quoting the Ninth Circuit, noted that “a claimant need not exhaust [administrative remedies] when the plan does not require it.” Because LINA could “not identify any language in the LTD Plan requiring Plaintiff to exhaust administrative remedies prior to filing a lawsuit,” its motion on this ground was denied. LINA also raised a second argument, which was that Ayres “failed to cooperate in the claim process.” Ayres denied this, and further responded that LINA failed to timely issue a decision on his claim under ERISA’s claim procedures. The court examined the pleadings and documents incorporated by reference in the pleadings “in the light most favorable to plaintiff,” as required by the Federal Rules of Civil Procedure. Under this standard, the court stated, “Arguably, the pleadings indicate Plaintiff did provide medical records and continued to provide supplemental records over the course of his communications with Defendant.” Thus, because there were “factual disputes as to the information Plaintiff allegedly failed to provide,” the court denied LINA’s motion on this ground as well. The court ordered the parties to meet and confer and file a stipulated order regarding a briefing schedule for the case.

Witt v. Intel Corp. Long-Term Disability Plan, No. 3:23-CV-01087-AN, 2024 WL 687928 (D. Or. Feb. 16, 2024) (Judge Adrienne Nelson). Plaintiff Randy Witt submitted a claim for benefits under Intel Corporation’s long-term disability employee benefit plan. Intel approved the claim for about three months and then terminated it on the ground that he no longer met the plan definition of disability. The Intel LTD plan has two mandatory appeals after a benefit denial. Witt submitted his first-level appeal to Intel through his attorney. Intel informed Witt that it needed an extension of time because it had referred his claim for independent physician review. Witt challenged this assertion, contending that this was not an “special circumstance” warranting an extension, and further contended that Intel had requested the extension too late and blown its deadline to respond under ERISA’s claim regulations. Intel responded by informing Witt that it had received the medical review reports, but they “had to be corrected based on the Plan provisions for medical evidence.” Intel provided the reports to Witt for a review and response, but Witt chose to file this action instead. Intel responded by filing a motion to stay the action and compel Witt to complete the appeal process under the plan. The court found that because Witt had submitted his appeal on May 25, 2023, Intel’s deadline was 45 days later, or July 9, 2023. Because Intel did not request an extension until July 12, 2023, its request was late and thus, under ERISA regulations, Witt’s appeal was “deemed denied” and he was not required to exhaust all the appeals ordinarily required by the plan. Intel contended that its extension was timely because Witt’s appeal was not actually complete until May 31, 2023, when Intel received additional materials from Witt. However, the court ruled that this did not toll the deadline because Intel did not request the additional information from Witt, nor did it indicate that it needed an extension because of Witt’s failure to provide necessary information. The court further ruled that Intel’s extension was not justified by “special circumstances” because it was dilatory; it failed to initiate its review process for almost a month after receiving Witt’s appeal. The court also addressed a second argument by Witt, which was that Intel could not enforce its appeal requirements because it “committed a procedural violation by failing to obtain medical reviews from appropriate medical professionals.” The court disagreed with this argument, finding that Intel “relied on reviews by medical professionals with appropriate training and experience in the field of medicine related to plaintiff’s claim.” As for the appropriate remedy, the court concluded that Intel’s failure to respond in a timely fashion to Witt’s appeal was not a “de minimis” violation, and thus the appropriate ruling was to deny Intel’s motion to compel Witt to exhaust his appeals.

Medical Benefit Claims

Sixth Circuit

Stover v. CareFactor, No. 2:22-CV-1789, 2024 WL 770071 (S.D. Ohio Feb. 26, 2024) (Judge Sarah D. Morrison). This is an action for medical benefits by plaintiff Richard Stover, who was covered under an employee benefit plan as an HVAC Division Manager. Stover “lived on a working cattle farm and sold freezer beef under the trade name Buckeye Country Angus.” In March of 2021 Stover was kicked in the leg by a bull calf, which required medical treatment, including a hospital stay. The claim administrator for the plan, defendant CareFactor, denied Stover’s claim for benefits relating to the incident under the plan’s occupational exclusion. Stover filed suit and CareFactor moved for judgment. The court first ruled that the proper standard of review was de novo because, while the plan contained a grant of discretionary authority, that grant was to the plan administrator and not to CareFactor. Under this standard of review, the court ruled that defendants “failed to shoulder the burden of proving that a coverage exclusion applied.” The court noted that Stover “has consistently asserted that he was kicked by a bull calf being raised for personal consumption,” not as part of any business operations, and that he provided statements and documents in support of this assertion. The court found that defendants ignored this evidence and “failed to develop any evidence to the contrary” by not following up on the information Stover had provided. As a result, the court denied defendants’ motion and directed that judgment be entered in Stover’s favor.

Pension Benefit Claims

Eighth Circuit

Randall v. GreatBanc Tr. Co., No. 22-cv-2354 (ECT/DJF), 2024 WL 713997 (D. Minn. Feb. 21, 2024) (Judge Eric C. Tostrud). Participants in a 401(k) plan with an employer stock ownership plan (ESOP) component sponsored by their employer, Well Fargo, survived motions to dismiss under both Federal Rule of Civil Procedure 12(b)(1) and Rule 12(b)(6) in this decision. Wells Fargo used the ESOP to meet its mandatory matching and discretionary profit sharing contributions under the 401(k) plan. As alleged, and as is typical with ESOPs, Wells Fargo lent money to the ESOP which the ESOP use to purchase shares of stock from the company, in this case preferred stock. This preferred stock is held in a reserve account until principal payments are made on the loan, at which point the preferred stock is, according to plan terms, required to be converted to $1,000 of common stock at the prevailing market rate and allocated to individual participants’ accounts. Plaintiffs filed a putative class action against Wells Fargo, its former CEO Timothy Sloan, and GreatBanc Trust Company, a fiduciary for the plan, alleging that this did not happen because the ESOP overpaid for preferred stock by calculating its value at more than $1,000. They asserted claims against all three defendants for breach of fiduciary and co-fiduciary duties, and prohibited transactions. Defendants moved to dismiss under Rule 12(b)(1), asserting that plaintiffs had suffered no cognizable injury sufficient to establish Article III standing, and under 12(b)(6) asserting that plaintiffs had failed to state plausible claims for relief. Addressing the Article III issue first, the court agreed with defendants that the overpayment for the preferred stock, without more, did not establish an injury because the preferred stock was never allocated to the accounts of the plaintiffs. Nevertheless, the court concluded that plaintiffs had alleged a “second injury theory” by contending that “‘if Wells Fargo had not misappropriated the ESOP’s preferred stock dividends and used them to subsidize its employer matching contributions,’ Wells Fargo ‘would have contributed additional shares of common stock to meet its employer matching contribution obligation, and the preferred dividends would have been used to make additional payments on the ESOP loans, converting more preferred stock to common stock for allocation to Plan participants.’” This was sufficient at the pleading stage to establish jurisdiction, despite what the court saw as Wells Fargo’s essentially merits-based arguments to the contrary. On the 12(b)(6) motions, the court turned first to the prohibited transaction claims, noting that the exemptions in 29 U.S.C. § 1108 are defenses and that to establish a party-in-interest prohibited transaction under Section 1106(a), plaintiffs were required only to plead that a fiduciary caused the specified (prohibited) transaction to occur between a plan and a party-in-interest. Concluding that they had done so, the court denied the motions to dismiss these claims. Likewise, with respect to the asserted Section 1106(b)(1) violations, the court concluded that plaintiffs plausibly alleged that Wells Fargo, acting in a fiduciary capacity, used preferred stock dividends in its own interest to meet its contribution obligations and that Sloan and GreatBanc knowingly participated in these actions. Similar factual allegations led the court to conclude that plaintiffs had plausibly alleged violations of ERISA’s loyalty provisions. While the court was not convinced that the imprudence claims were stated in a sufficiently non-conclusory manner, the court ultimately concluded that the allegations related to disloyalty were enough to allow the prudence claims to also survive at the pleading stage. The court’s denial of the motions to dismiss the remaining claims – for breach of the duty to follow plan documents, violations of ERISA anti-inurement provisions, and failure to monitor and for co-fiduciary breaches – flowed from these prior conclusions. All in all, a great decision for the plaintiffs, represented by my colleagues and friends (and loyal Your ERISA Watch readers) Dan Feinberg, Nina Wasow, and Todd Jackson at Feinberg, Jackson, Worthman & Wasow.

Statutory Penalties

Fifth Circuit

Jones v. AT&T, Inc., No. CV 20-2337, 2024 WL 772496 (E.D. La. Feb. 26, 2024) (Judge Greg Gerard Guidry). Plaintiff William Jones, serving as the executor and administrator of an estate, brought this action against AT&T alleging that AT&T failed to produce plan documents in violation of ERISA. The court entered judgment in AT&T’s favor, and Jones brought a motion for reconsideration. Jones contended that the court erred by (1) only addressing two of the three documents he claimed should have been produced, and (2) crediting testimony from AT&T that it had “produced everything they had in their possession to Plaintiff.” The court denied Jones’ motion. The court admitted that it had not expressly named one of the plan documents in its order, but ruled that its order encompassed that document by reference, so there was no error. As for AT&T’s testimony, the court stated that Jones “presented no evidence at trial to controvert that testimony,” and had not demonstrated that there were other relevant unproduced documents. Thus, the court denied Jones’ motion.

Withdrawal Liability & Unpaid Contributions

Ninth Circuit

Walker Specialty Constr., Inc. v. Board of Trs. of the Constr. Indus. & Laborers Joint Pension Tr. for S. Nev., No. 2:23-CV-00281-APG-MDC, 2024 WL 756078 (D. Nev. Feb. 22, 2024) (Judge Andrew P. Gordon). The Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) amended ERISA to create “withdrawal liability.” Under the MPPAA, if an employer withdraws from a multiemployer pension plan, it is liable for its share of the fund’s unfunded vested benefits. However, there is an important exception: no withdrawal liability is owed for “building and construction industry” employees. In this case the plaintiff, Walker, performed asbestos removal, lead removal, and demolition work. It ceased operating in Nevada but contended that it did not owe $2.8 million in withdrawal liability because its employees fit this exception. It took the pension trust to arbitration, and lost, and then challenged the arbitrator’s decision in this action. The parties filed cross-motions for summary judgment which were decided in this order. The court reviewed the arbitration decision de novo because there were “no factual disputes about the work Walker’s employees performed” and “[t]he proper interpretation of the statutory term ‘building and construction industry’ is a question of law.” The court noted that the term is undefined in the MPPAA and the Ninth Circuit had not interpreted its meaning. The trust argued that Walker did not fit the building and construction exception because its employees only removed or demolished structures, and did not make or build anything. However, the court relied on the National Labor Relations Board (NLRB) and its interpretations of the 1947 Taft-Hartley Act, which uses the same language, and ruled that the exception was not “confine[d]…to literal erecting of structures.” Specifically, the NLRB had ruled in a post-MPPAA decision that asbestos removal met the Taft-Hartley Act’s definition. Furthermore, “courts have understood the definition…to encompass more than just work that forms, makes, or builds a structure in the literal sense.” Thus, the court ruled, “By encapsulating and removing component parts of fixtures attached to buildings, and by demolishing buildings for future repair, remodeling, or construction, Walker engaged in work in the building and construction industry,” thereby satisfying the MPPAA’s withdrawal liability exception. The court thus granted Walker’s summary judgment motion and denied the trust’s.