Watson v. EMC Corp., No. 22-1356, __ F. App’x __, 2024 WL 501610 (10th Cir. Feb. 9, 2024) (Before Circuit Judges Matheson, Kelly, and Eid)

Individual benefit plan participants and beneficiaries seeking relief under ERISA typically look to two different provisions in deciding what claims to bring. One section, 29 U.S.C. § 1132(a)(1)(B), allows a plaintiff to “recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan[.]” Another, Section 1132(a)(3), allows a participant to “obtain other appropriate equitable relief…to enforce any provisions of this subchapter or the terms of the plan[.]”

Since ERISA’s enactment 50 years ago, the courts have wrestled with these two provisions. What is the difference between these two claims? When can a plaintiff bring each kind of claim? If a plaintiff cannot recover plan benefits under the first provision, what kind of equitable relief is “appropriate” under the second provision?

This week’s notable decision is the latest installment in this ongoing debate. The plaintiff is Marie Watson, widow of Thayne Watson. (Shameless self-promotion disclosure: Ms. Watson was represented on appeal by Kantor & Kantor attorneys Glenn R. Kantor and Your ERISA Watch co-editor Peter S. Sessions.) Mr. Watson worked for defendant EMC Corporation and participated in its various benefit plans, including its group life insurance plan, which was insured by MetLife. When Dell, Inc. acquired EMC, Mr. Watson entered into a voluntary separation agreement which resulted in the termination of his employment on November 24, 2016.

Under the separation agreement, Mr. Watson was eligible for continued group health benefits after termination and had the right to convert his life insurance from group coverage to an individual policy. Upon termination, Mr. Watson emailed EMC and asked, “How do I start paying for my benefits at the employee rate for the next year?” An EMC benefits representative told him he would be receiving bills from ADP, EMC’s payroll administrator, “to continue paying for your benefits. Benefits remain active during the transition.”

Mr. and Ms. Watson interpreted this email to mean that Mr. Watson’s life insurance benefit would continue so long as he paid the bills he received from ADP, which he did. However, when Mr. Watson died in 2017, and Ms. Watson submitted a claim for benefits, MetLife denied her claim on the ground that Mr. Watson had never converted his insurance to an individual policy as required by the plan, and thus his coverage ended upon his job termination.

Ms. Watson brought this action in the District Court of Colorado against various defendants, and after vigorous litigation one claim remained: a claim for breach of fiduciary duty against EMC under Section 1132(a)(3) seeking equitable relief in the form of surcharge. (Traditionally, surcharge is a monetary remedy that can be awarded to compensate for a loss resulting from a trustee’s breach.)

In this claim, Ms. Watson asserted that even if she was not entitled to plan benefits pursuant to Section 1132(a)(1)(B) – because Mr. Watson had not converted his coverage – she should still be entitled to some equitable remedy from EMC under Section 1132(a)(3) because the only reason Mr. Watson had not converted was because EMC had misled him into thinking he did not need to do so.

The district court resolved this claim in an unusual fashion. Instead of deciding whether a breach of fiduciary duty had occurred, and then devising an equitable remedy in the case of a breach, the court assumed for the purposes of its decision that a breach had occurred. However, even assuming such a breach, the district court ruled that it would not award any equitable relief. The district court’s rationale was that because Mr. Watson never converted his coverage, or paid any premiums on the life insurance coverage under which he sought benefits, he could not recover surcharge based on those lost benefits.

Ms. Watson appealed this decision to the Tenth Circuit. In a brief ruling, the appellate court agreed with Ms. Watson that the district court “committed legal error and therefore abused its discretion because it treated Ms. Watson’s § 1132(a)(3) claim for fiduciary breach as a § 1132(a)(1)(B) claim to recover under the plan.”

In so doing, the Tenth Circuit emphasized the distinction between (a)(1)(B) and (a)(3) claims. The court explained that Section 1132(a)(1)(B) allows suits for benefits that are “due…under the terms of [a] plan.” Because Mr. Watson had not converted his coverage according to the plan terms, no benefits were “due under the plan” and thus Ms. Watson could not bring an (a)(1)(B) claim. As a result, Ms. Watson’s only alternative was Section 1132(a)(3), which the Supreme Court has ruled acts as “catch-all” relief “for injuries caused by violations that [ERISA] does not elsewhere adequately remedy.”

The Tenth Circuit ruled that the district court had conflated these two sections. By imposing (a)(1)(B) requirements, i.e., complying with the plan’s conversion rules, to Ms. Watson’s (a)(3) claim, a backstop that does not require plan compliance, the district court “legally erred” and thus reversal was required.

Although Ms. Watson achieved a reversal, her victory was not complete. The Tenth Circuit dodged two issues in arriving at its decision. First, the court expressed no opinion as to whether EMC had in fact breached a fiduciary duty, noting that because the district court had not ruled on the issue, “we decline to address it.” Thus, the district court will have to revisit this issue on remand.

More importantly, the court declined to address an issue raised by EMC on appeal, which was whether surcharge is even a valid remedy under Section 1132(a)(3). EMC argued that it is not, relying on a recent controversial decision by the Fourth Circuit, Rose v. PSA Airlines, Inc., which held that ERISA plaintiffs cannot seek “merely personal liability upon the defendants to pay a sum of money” under Section 1132(a)(3) because such a remedy is purely “legal,” not “equitable.” (Your ERISA Watch discussed Rose in detail in its September 13, 2023 edition, a decision that will undoubtedly have far-reaching consequences in courts in the Fourth Circuit and beyond, as demonstrated in the Suchin v. Fresenius Med. Care Holdings decision discussed below.)

In a footnote, the Tenth Circuit responded by asserting that EMC “has not adequately developed an argument in its response brief that a surcharge is never appropriate under § 1132(a)(3)(B).” Thus, “without the benefit of full briefing (here or in district court) and district court analysis on whether Rose, a nonbinding out-of-circuit case, should affect the surcharge issue here, we do not consider EMC’s suggestion.” The court noted that “EMC may, however, ask the district court to consider its Rose argument on remand.”

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

Attorneys’ Fees

Ninth Circuit

Oksana B. v. Premera Blue Cross, No. C22-1517 MJP, 2024 WL 518897 (W.D. Wash. Feb. 9, 2024) (Judge Marsha J. Pechman). Plaintiff Oksana B. prevailed in this action for medical benefits when the court ruled that defendant Premera Blue Cross abused its discretion in denying her claims for plan benefits arising from her stay at two different mental health treatment facilities. In this order the court ruled that she was entitled to an award of attorney’s fees under ERISA because she had “achieved a high degree of success” and had satisfied the Ninth Circuit’s Hummell factors. Specifically, the court found that (1) Premera had acted unreasonably and in bad faith, (2) Premera could satisfy a fee award, (3) Premera would be deterred in similar future circumstances by a fee award, (4) plaintiff’s success might benefit other participants, and (5) the relative merits favored plaintiff. The court further found that the $49,552.50 fee request was reasonable. This calculation was based on 119.1 hours of work by three attorneys, who requested and were awarded hourly rates of $600 (Brian S. King), $500 (local counsel John Wood), and $250/$200 (law clerk/new attorney Andrew Sommers). Premera did not object to the hours or rates requested. The court also awarded plaintiff prejudgment interest at 5.01%, based on the weekly average 1-year constant maturity Treasury yield at the time of judgment, as well as $400 in costs.

Class Actions

Fifth Circuit

Pedersen v. Kinder Morgan Inc., No. 4:21-CV-03590, 2024 WL 495267 (S.D. Tex. Feb. 8, 2024) (Judge Keith P. Ellison). The district court certified a class action (with a number of subclasses) in this suit concerning changes in early and normal retirement pension benefits “brought on by a series of corporate mergers and acquisitions.” Claim I challenges certain benefit calculation changes in normal retirement benefits as violating ERISA’s prohibition on “backloading” or concentrating benefit accruals in employees’ later years of employment. Claim II challenges certain changes in normal retirement benefits as violative of ERISA’s anti-cutback provision. Claim III alleges that relevant summary plan descriptions failed to alert plan participants who started work with the company before the age of 35 that the changes would decrease their monthly retirement benefits. With respect to these counts, the plaintiffs sought certification of a normal retirement/benefit accrual subclass of participants affected by the changes. Count IV alleges that a 2007 change with respect to early retirement eligibility violated ERISA’s anti-cutback provision, and Count V alleges, in the alternative, that employees who were not yet 53 when the 2007 notice came out are still entitled to unreduced early retirement benefits. Plaintiffs sought certification of an early retirement subclass with respect to these claims. Finally, plaintiffs sought certification of an actuarial equivalence subclass with respect to Count VI, which claims that the unreduced early retirement benefits the plan offered were not the actuarial equivalence of benefits that the employees would receive on normal retirement benefits. The court concluded that all three proposed subclasses met the four requirements of Rule 23(a). Likewise, the court concluded that plaintiffs met the requirements of Rule 23(b)(2) for each subclass and therefore declined to assess whether they also met the requirements of 23(b)(1)(A) or 23(b)(3). The court therefore certified the proposed general class and subclasses exactly as proposed and declined to allow defendants further discovery with respect to a proposed additional plaintiff, finding that because the current plaintiff was adequate, discovery was unnecessary.

Disability Benefit Claims

Fourth Circuit

Paulson v. Guardian Life Ins. Co. of Am., No. 1:22-cv-877 (RDA/IDD), 2024 WL 422664 (E.D. Va. Feb. 5, 2024) (Judge Rossie D. Alston, Jr.). Plaintiff Linda Paulson brought suit for disability benefits and penalties after Guardian Life Insurance Co. of America, the insurer and claims administrator of her disability plan, cut off her benefits based on a plan provision limiting benefits to 24 months for certain enumerated conditions. Applying a deferential standard of review based on the plan’s grant to Guardian of “final discretionary authority” to decide claims. the court granted partial summary judgment in favor of Guardian on the claim for benefits. As an initial matter, the court considered Ms. Paulson’s argument that she was not given proper notice of the basis for the termination of her benefits because Guardian raised two new bases for its decision – that her migraines were subject to the 24-month limitations provision and that her cervical radiculopathy was not disabling – in its final denial letter. With respect to her claim based on migraines, the court held that Ms. Paulson was on notice of this basis for denial and indeed submitted additional evidence addressing this issue. However, the court agreed with Ms. Paulson that Guardian presented shifting grounds for denial of benefits with respect to her radiculopathy. Rather than granting summary judgment in her favor on this issue, the proper remedy in the Fourth Circuit was to remand to Guardian for “full and fair” administrative review of this aspect of her claim. With regard to the merits of her claim based on her migraines, the court held that Guardian acted reasonably in concluding that migraines are a type of “headache” and, as such, were expressly limited under the terms of the plan to a 24-month benefit period. Finally, with respect to Ms. Paulson’s claim for penalties, the court requested further briefing on the issue, and likewise held off determination of Ms. Paulson’s claim for attorney’s fees pending its determination of the penalty claim.

ERISA Preemption

Ninth Circuit

Sanjiv Goel, M.D., Inc. v. United Healthcare Servs., Inc., No. 2:23-CV-10065-SPG-E, 2024 WL 515438 (C.D. Cal. Feb. 8, 2024) (Judge Sherilyn Peace Garnett). Dr. Sanjiv Goel is a medical provider who filed this suit against health insurer United in California court alleging state law claims of breach of implied-in-law contract, unjust enrichment, breach of the implied covenant of good faith and fair dealing, quantum meruit, estoppel, violation of California’s Unfair Competition Law, and declaratory relief. United removed the case to federal court, and Goel filed a motion to remand. United opposed on three grounds: (1) diversity jurisdiction existed; (2) Goel’s implied-in-law claim arose under the federal Emergency Medical Treatment and Active Labor Act (“EMTALA”), and (3) Goel’s state law claims were preempted by ERISA. Although the parties were diverse, Goel asserted that he was not seeking more than $75,000 in damages, so the court ruled that diversity jurisdiction did not exist. The court also ruled that because Goel’s claims arose both under state law and EMTALA, the federal issue of EMTALA’s application was not “necessarily raised,” and thus federal jurisdiction did not attach. As for ERISA preemption, the court noted that “health care providers are not ‘beneficiaries’ within the meaning of ERISA’s enforcement provisions,” and thus Goel could not bring his claims under ERISA. Thus, his claims were not preempted. The court declined to award attorney’s fees to Goel, but granted his motion to remand the case to state court.

Eleventh Circuit

Small v. Blue Cross & Blue Shield of Fla., Inc., No. 3:23-cv-603-MMH-PDB, 2024 WL 482802 (M.D. Fla. Feb. 2, 2024) (Magistrate Judge Patricia D. Barksdale). Similar to the case just discussed, this decision involves the application of ERISA’s preemption provision to claims by an out-of-network medical provider against Blue Cross and Blue Shield of Florida and other related Blue Cross entities. These claims relate to four reconstructive surgeries performed by Dr. Small on breast cancer patients who were participants in ERISA plans insured and administered by Blue Cross for which Blue Cross reimbursed Dr. Small only $5,204.32 on $200,062.50 in billed charges (or 2.67%). Not surprisingly, Dr. Small sued asserting two state-law claims: a claim for breach of implied-in-fact contract/quantum meruit and a claim for breach of implied-in-law contract/unjust enrichment. Blue Cross moved to dismiss and strike these claims, citing ERISA’s express preemption provision. Relying on cases from the Third and Fifth Circuits, the magistrate judge concluded that ERISA preempts Dr. Small’s claims under state law because, as the magistrate saw it, both claims were premised on the existence of an ERISA plan, unlike claims for breach of contract or promissory estoppel, or claims based on state statutory violations, which could exist separate from an ERISA plan. The court thus recommended that the district court enter an order dismissing the case on the basis of preemption and denying as moot Blue Cross’ motion to strike these claims and Dr. Small’s jury demand.  

Life Insurance & AD&D Benefit Claims

Tenth Circuit

Metropolitan Life Ins. Co. v. Badali, No. 1:22-CV-00158-TC-JCB, 2024 WL 418118 (D. Utah Feb. 5, 2024) (Judge Tena Campbell). Plaintiff MetLife brought this interpleader action, asserting that it was unable to determine the proper beneficiary of life insurance proceeds payable after the death of Delta Air Lines pilot Boyd Badali. The potential beneficiaries were Mr. Badali’s former wife, Diann Badali, and his wife at the time of his death, Renata Badali. Both defendants filed motions for summary judgment, which were decided in this order. The court determined that because ERISA governed the operation of the benefit plan at issue, “determining the proper payee is relatively simple.” The plan stated that if there was “no Beneficiary designated or no surviving Beneficiary at Your death, We will determine the Beneficiary according to the following order: 1. Your Spouse or Domestic Partner[.]” It was undisputed that Mr. Badali had not completed a beneficiary designation form. Diann, his former wife, argued that an agreement between her and Mr. Badali clarifying their divorce decree specified that Mr. Badali would “keep Diann as beneficiary on the Delta provided life insurance policy.” Diann also presented a declaration from a MetLife employee stating that that it did not handle complete recordkeeping for the plan and that a third-party administrator handled eligibility/coverage information for Delta. The court ruled that this evidence did not overcome the fact that Mr. Badali had not designated a beneficiary pursuant to plan procedures, and thus the plan dictated that benefits be paid to his current spouse, i.e., Renata. The court also rejected Diann’s argument that equity supported awarding her the benefits, noting that her cited state law cases did not involve ERISA, “which does not allow the court to consider equitable arguments when a plan’s language is clear.” Furthermore, Diann could not bring an equitable claim for unjust enrichment against Renata because she had not conferred a benefit on Renata. As a result, the court granted Renata’s motion for summary judgment, denied Diann’s, and awarded the life insurance benefits to Renata.

Medical Benefit Claims

Ninth Circuit

Archer v. UnitedHealthcare Servs, No. CV-20-02458-PHX-JJT, 2024 WL 492230 (D. Ariz. Feb. 8, 2024) (Judge John J. Tuchi). After receiving plasma injections for chronic back pain, undergoing back surgery, and receiving treatment for an infection, plaintiff Scott Archer entered inpatient rehabilitative care. Defendant United denied benefits for most of Archer’s rehabilitation treatment, contending that he had stopped making medical progress, and thus his care was custodial and not “medically necessary” under the terms of his employee medical benefit plan. Archer filed suit and the case proceeded to motions for judgment. The court first concluded that the abuse of discretion standard of review applied. Archer argued that a de novo standard was appropriate because of delays in United’s handling of his claim, but the court ruled that any such delays occurred during voluntary review after Archer’s appeals had concluded, and did not mandate de novo review in any event. Under a deferential standard of review, the court concluded that United did not abuse its discretion. The court stated that United had reasonably found that Archer’s progress had plateaued and that he was self-sufficient in some areas. United also “explained why many aspects of Plaintiff’s care could have been accomplished at a lower level of care or in an out-patient facility.” The court thus entered judgment in favor of defendants.

Remedies

Fourth Circuit

Suchin v. Fresenius Med. Care Holdings, No. Civ. JKB-23-01243, 2024 WL 449322 (D. Md. Feb. 6, 2024) (Judge James K. Bredar). Dr. Suchin, a terminally ill radiologist, brought suit for fiduciary breach under Section 1132(a)(3) against his former employer (and the administrator of the plans in question) after receiving far less in disability benefits, and learning that his wife would receive far less in life insurance proceeds after he died, than he had been led to believe. Specifically, Dr. Suchin alleged that Fresenius provided him with misleading and inaccurate information indicating that he would receive 60% of his salary in disability benefits and his widow would receive twice his annual salary upon his death in life insurance benefits when, in fact, both amounts were capped at a much lower level and subject to offsets. Furthermore, Fresenius failed to provide him with summary plan descriptions (SPDs) and plan documents which would have clarified the matter. Fresenius moved to dismiss. The court rejected Fresenius’ argument that Dr. Suchin’s life insurance claim was unripe while he was still alive, and concluded, similarly to the Tenth Circuit in Watson v. EMC Corp., our case of the week above, that Dr. Suchin could seek relief under Section 1132(a)(3) precisely because he was not entitled to benefits under the terms of the plan. The court then addressed whether Dr. Suchin had stated a claim for fiduciary breach. The court again ruled in Dr. Suchin’s favor, concluding that Dr. Suchin adequately alleged that Fresenius was an ERISA fiduciary that breached its duties in providing him with incomplete and misleading information about his benefits and failing to provide him with statutorily-required SPDs. Dr. Suchin did not fare as well with respect to his request for relief. With respect to his request that both plans be reformed to reflect the benefits he thought he and his family would receive, the court concluded that he was required but failed to adequately allege that Fresenius had acted fraudulently even as an equitable matter and failed to join New York Life Insurance Co., one of the parties to the contract. With respect to Dr. Suchin’s request for equitable estoppel, the court concluded that Dr. Suchin failed to allege that his belief about the extent of his benefits based on alleged misrepresentations was reasonable, suggesting that Dr. Suchin was required to meet a “who, what and when” pleading standard applicable to fraud allegations. Finally, the district court held that the Fourth Circuit’s Rose v. PSA Airlines, Inc. decision (addressed above in our discussion of Watson) foreclosed the availability of the surcharge remedy sought by Dr. Suchin. Thus, the court concluded “that Suchin has plausibly alleged a breach of fiduciary duty, but nevertheless is not entitled to the three remedies at issue in the present Motion to Dismiss.” It dismissed, “albeit without prejudice with respect to Suchin’s claims for reformation and equitable estoppel.”  

Retaliation Claims

Fourth Circuit

Johns v. Morris, No. 5:23-CV-324-D, 2024 WL 457766 (E.D.N.C. Feb. 6, 2024) (Judge James C. Dever III). Plaintiff Bryan Johns was the company president and chief operating officer for Morris & Associates for many years. As a result, he was both a participant in, and a fiduciary trustee of, the Morris & Associates Employee Stock Ownership Plan. Johns contends that defendants, which included the company, trustees of the plan, and the board, terminated him in 2023 “after he questioned the reasonableness of the market valuations given for the ESOP’s stock holdings in the Company.” In this action he has alleged four claims under ERISA: three for breach of fiduciary duty and a fourth for retaliation under ERISA Section 510 for “interfering with his protected rights under ERISA and the Plan to investigate and manage the ESOP stock valuations[.]” Defendants moved to dismiss, arguing first that Johns did not have standing to bring his breach of duty claims because he no longer served as a fiduciary for the plan. (The defendants had voted to remove him.) The court rejected this argument, noting that even if Johns was no longer a fiduciary for the plan, he still had standing because he was a participant in the plan. As for Johns’ Section 510 claim, defendants argued that his objections were simply an “internal complaint” that did not give rise to liability. The court disagreed, ruling that Johns had “anchored” his claim in the statutory language of Section 510 by pleading that he was exercising a right to which he was entitled under the terms and conditions of the plan. The court thus denied defendants’ motion in its entirety.

Fifth Circuit

Coleman v. Chevron Phillips Chem. Co., No. CV H-23-350, 2024 WL 460248 (S.D. Tex. Feb. 6, 2024) (Judge Lee H. Rosenthal). Plaintiff Ronnie Coleman contends in this action that his former employer, CPChem, discriminated against him based on his race and age, and terminated him in violation of ERISA because it wanted to avoid paying medical benefits for his gout condition. CPChem filed a motion for summary judgment, which the court granted in this order. The court ruled that Coleman had presented a prima facie case of race discrimination, but because Coleman had failed a “walkthrough test,” CPChem had articulated a legitimate, non-discriminatory reason for his termination. Coleman argued that CPChem’s test was biased, but the court ruled that he had not presented sufficient evidence to support that argument. The court likewise ruled in CPChem’s favor on Coleman’s age discrimination claim because Coleman could not present any evidence of pretext by CPChem. As for Coleman’s ERISA claim, the court stated that he “relies on the temporal proximity between his informing CPChem that he needed a liver transplant and CPChem’s decision the next day to terminate Coleman.” However, citing a Fifth Circuit decision, the court ruled that “reliance on temporal proximity alone is insufficient to raise a genuine issue of fact material to determining whether CPChem terminated Coleman with the specific intent of violating ERISA.” The court thus granted CPChem summary judgment on all of Coleman’s claims.

Eleventh Circuit

Monte v. City of Tampa, No. 8:23-CV-855-JLB-SPF, 2024 WL 449634 (M.D. Fla. Feb. 6, 2024) (Judge John L. Badalamenti). Plaintiff Anthony Monte was a Tampa, Florida police officer from 2009 to 2022, when he was discharged due to medical disability. He filed suit in 2023, contending that his pension benefit was artificially low because he should have been offered overtime in his final year of work, which would have increased his benefit substantially. He asserted claims of disability discrimination in violation of the Americans with Disabilities Act and the Florida Civil Rights Act of 1992, as well as a claim for interference with benefits in violation of ERISA. Tampa filed a motion to dismiss. At the outset, the court rejected Tampa’s argument that Monte was not a “qualified individual” under the ADA and FCRA, and let those claims proceed. As for Monte’s ERISA claims, Tampa contended that “refusal to offer overtime work and pay is not actionable under ERISA,” and Monte did not allege that he had a statutory or contractual right to overtime. The court disagreed with these arguments, ruling that Monte plausibly pled a claim for interference with benefits because he alleged that Tampa intentionally prohibited him from working overtime in order to reduce his retirement pension. The court further rejected Tampa’s argument that Monte did not exhaust his administrative remedies under ERISA because Tampa failed to identify what procedure he was required to participate in. Finally, the court ruled that Monte’s ADA claim was not preempted by ERISA because ERISA provides that “[n]othing in this subchapter shall be construed to alter, amend, modify, invalidate, impair, or supersede any law of the United States…or any rule or regulation issued under any such law.” Because Monte’s FCRA claim tracked his ADA claim, the court ruled that it was saved from preemption as well. As a result, Tampa’s motion to dismiss was denied.

Severance Benefit Claims

Sixth Circuit

Kramer v. American Elec. Power Exec. Severance Plan, No. 2:21-CV-5501, 2024 WL 418979 (S.D. Ohio Feb. 5, 2024) (Judge Sarah D. Morrison). Plaintiff Derek Kramer, a former Vice President and Chief Digital Officer for American Electric Power, seeks benefits under AEP’s Executive Severance Plan pursuant to his termination. AEP filed a motion for summary judgment, contending that it properly denied Kramer’s benefit claim because an internal investigation revealed that he had facilitated the misuse of a company credit card. AEP also contended that during its investigation Kramer acted suspiciously by remotely wiping his company-issued phone after AEP retrieved it from him. The court began its analysis with the standard of review. The plan provided that employees are ineligible for benefits if they are terminated “for Cause,” and that the plan’s committee, “in its sole and absolute discretion, shall determine Cause.” Kramer argued that this language did not properly confer discretionary authority because the court had previously determined that the plan was a “top hat” plan. (Your ERISA Watch covered this ruling in its April 19, 2023 edition.) The court stated, however, that the standard of review analysis was the same regardless of whether the plan was a top hat plan, and thus the appropriate standard of review was abuse of discretion. Under this deferential review, the court upheld AEP’s decision to deny Kramer’s claim for severance benefits, ruling that AEP and its committee had “offered a reasonable explanation, based on evidence, for their conclusion that Mr. Kramer was terminated for Cause. As such, the adverse benefit determination was neither arbitrary nor capricious. The Court will not disturb it.” In doing so, the court rejected Kramer’s arguments that (a) the plan had a conflict of interest, (b) he was not given a written explanation for his termination, (c) his claim was denied based on ex post facto evidence, (d) the court should draw a negative inference from AEP’s use of attorneys, and (e) the plan’s reasons for his suspension and termination changed over time. The court also ruled that Kramer could not bring an interference claim under ERISA because he “does not allege that AEP engaged in any conduct beyond denying his claim for Plan benefits.” Thus, the court granted AEP’s motion for summary judgment.

Statute of Limitations

Third Circuit

Verizon Employee Benefits Comm. v. Irizarry, No. CV-23-1708-MAS-DEA, 2024 WL 415692  (D.N.J. Feb. 5, 2024) (Judge Michael A. Shipp). Defendant Edgar Irizarry is a former employee of Verizon who participated in Verizon’s pension plan. When he divorced cross-claimant Sara Irizarry in 1999, a New Jersey court issued a qualified domestic relations order (“QDRO”) to divide their assets, which entitled Ms. Irizarry to a portion of Mr. Irizarry’s pension benefit. Verizon was provided with a copy of the QDRO. Mr. Irizarry retired in 2011 and requested that his pension be paid in a lump sum. On his request form he falsely certified that his pension was not subject to a QDRO, and Verizon erroneously paid him the entirety of the pension fund. Eleven years later, in 2022, Ms. Irizarry contacted Verizon to find out why she had not received her portion of the pension. In response, Verizon filed this action seeking equitable relief under ERISA § 1132(a)(3), hoping to recover from Mr. Irizarry the funds that should have been paid to Ms. Irizarry. Ms. Irizarry also filed a cross-claim against Mr. Irizarry. Mr. Irizarry filed a motion to dismiss, which was decided in this order. He first claimed that Verizon’s claim was time-barred. The parties agreed that Verizon’s claim was analogous to an equitable claim for unjust enrichment, and thus the court borrowed New Jersey’s six-year statute of limitations for that cause of action to decide the issue. The parties did not agree about when the six-year limit began to accrue, however. Mr. Irizarry contended that it accrued in 2011 when he requested his pension, while Verizon contended that it accrued in 2022 when it was contacted by Ms. Irizarry. The court concluded that ERISA’s “discovery rule” applied, and that it could not decide based on the pleadings when Verizon should have discovered the mistaken payment with reasonable diligence. For the same reason, the court declined to grant Mr. Irizarry’s motion based on a laches defense. As for Mr. Irizarry’s motion to dismiss Ms. Irizarry’s cross-claim, the court granted it without prejudice because Ms. Irizarry did not respond to the motion and it was unclear what provision under ERISA she was invoking to justify her claim. Finally, Mr. Irizarry asked the court to stay the proceedings so that a New Jersey court could resolve the issue of Ms. Irizarry’s entitlement to payments under the QDRO due to a potential ambiguity in the QDRO. The court rejected this request, ruling that it had jurisdiction over the relevant claims and was obligated by ERISA to adjudicate the issue of declaratory relief over a beneficiary’s rights.

Venue

Sixth Circuit

Valentine v. Line Constr. Ben. Fund, No. 2:23-CV-4175, 2024 WL 488048 (S.D. Ohio Feb. 8, 2024) (Magistrate Judge Chelsey M. Vascura). Plaintiff Nicholas Valentine filed this action in state court seeking benefits under an employee health insurance plan. Defendant removed the case to federal court on ERISA preemption grounds and filed a motion to transfer venue to the Northern District of Illinois, citing the plan’s forum-selection clause. Mr. Valentine did not respond to the motion. Relying on Sixth Circuit precedent, the court concluded that the clause was valid and enforceable, and agreed that the case should be transferred because the case was “not one of the ‘most exceptional cases’ in which the public-interest factors outweigh the parties’ agreement to litigate in the Northern District of Illinois.” The court thus granted defendant’s motion to transfer.

Withdrawal Liability & Unpaid Contributions

D.C. Circuit

Trustees of the IAM Nat’l Pension Fund v. M&K Emp. Sols., No. 22-7157, __ F. 4th __, 2024 WL 501826 (D.C. Cir. Feb. 9, 2024) (Before Circuit Judges Rao, Walker, and Childs). This opinion consolidated two cases which fall in the relatively rare category of withdrawal liability disputes that raise complicated and interesting issues worthy of our beloved and complex statute. In these cases, the district court vacated arbitration decisions based on a determination that Cheiron, Inc., an actuarial consulting firm employed by the IAM National Pension Fund (the “Fund”) to assess liability, had erred in assessing the amount of withdrawal liability for employers participating in the Fund. The court of appeals held that the district court correctly found that the arbitrator erred in concluding that the actuary must use the assumptions and methods in effect on the relevant measurement date in calculating the employer’s proportionate share of the Fund’s unfunded vested benefits. Instead, the relevant statutory provisions are best “read to allow later adoption of actuarial assumptions, so long as those assumptions are ‘as of’ the measurement date – that is, the assumptions must be based on the body of knowledge available up to the measurement date.” This meant that it was it is “permissible for the Fund to assess withdrawal liability for the Companies, which withdrew in 2018, based on actuarial assumptions adopted in January 2018,” and that Cheiron was not required as a matter of law to use assumptions that had been adopted prior to December 31, 2017. Any other approach would be contrary to the statutory “requirement that an actuary use its ‘best estimate’ of the plan’s anticipated experience as of the measurement date to require an actuary to determine what assumptions to use before the close of business on the measurement date.” The decision was not a complete victory for the Fund, however. The court of appeals also concluded that the employer in one of the cases, M&K, was entitled to something referred to as the “free-look exception,” which “allows an employer to withdraw from a plan within a specified period after joining without incurring withdrawal liability.” Because M&K “had an obligation of fewer than five years at the time” it partially withdrew from the plan in 2017, it “met the free-look exception requirements.” On this basis, the appellate court affirmed the district court’s decision vacating the arbitrator’s decision to the contrary.

Arnold v. Paredes, No. 3:23-CV-00545, __ F. Supp. 3d __, 2024 WL 356751 (M.D. Tenn. Jan. 31, 2024) (Judge Waverly D. Crenshaw, Jr.)

In an effort to prevent benefit plan participants from bringing class actions, or attempting to seek plan-wide relief, as permitted by ERISA under 29 U.S.C. § 1132(a)(2), administrators have increasingly inserted provisions into their plans to thwart them. Often these efforts combine a prohibition on bringing class actions, or a requirement that beneficiaries seek individual relief only, with a provision requiring participants to arbitrate their claims.

The federal courts have increasingly looked askance at these strategies. In the past couple of years, the Third, Seventh, and Tenth Circuit Courts of Appeal have all ruled that benefit plans cannot compel a participant to arbitrate if the arbitration provision prohibits the participant from seeking collective relief on behalf of the plan. These courts ruled that such provisions violate the “effective vindication” doctrine, which holds that when a contractual provision prevents the effective vindication of federal statutory rights, it cannot be enforced. Because Section 1132(a)(2) expressly allows participants to seek plan-wide relief, plans cannot force them into arbitrations where such relief is not permitted.

This week’s notable decision, a published ruling from the Middle District of Tennessee, takes another look at the effective vindication doctrine. However, this time there was no arbitration provision in the mix. Would the result be the same?

The case is a putative class action by employees of Churchill Holdings, Inc. contending that ERISA violations occurred when the Churchill Employee Stock Ownership Plan purchased stock from Churchill’s president and CEO in 2020. Plaintiffs sued the CEO, other corporate officers, and the trustees of the plan, contending that the plan “grossly overpaid” for the stock and that the company improperly used plan dividends “for corporate purposes and not for the benefit of the Plan.” Defendants responded by filing two motions to dismiss.

Defendants first argued that two of the three named plaintiffs signed severance agreements barring their claims. Relying on a recent Sixth Circuit decision, Hawkins v. Cintas, the court ruled that the plaintiffs’ claims were derivative, i.e., brought on behalf of the plan and seeking relief for the plan. As a result, because the claims at issue belonged to the plan, the plaintiffs “did not have the power to individually waive claims owned by the Plan in their separation agreements.” Defendants argued that Hawkins did not apply because that case concerned an arbitration agreement, not a release of claims, but the court stated that defendants “offer no argument…explaining why Hawkins’ reasoning – that § 502(a)(2) claims belong to the Plan and not individual plaintiffs suing on its behalf – should not equally apply to releases of claims.” In short, because the claims at issue never belonged to the plaintiffs in the first place, they could not waive them in their severance agreements.

Defendants’ second argument, that the plan contained a class action waiver, fared no better. Plaintiffs invoked the effective vindication doctrine in opposing this argument, and also argued that the waiver was an unlawful exculpatory provision barred by ERISA § 410(a) (“any provision…which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part shall be void as against public policy”).

The court agreed with both of plaintiffs’ arguments. Defendants contended, as with its severance agreement argument, that the cases cited by plaintiffs did not apply because they involved an arbitration provision. The court admitted that the class action waiver in this case did not appear in an arbitration provision, and in fact, the plan had no arbitration provision at all. The court also conceded that class action waivers, by themselves, are not per se violations of the effective vindication doctrine. However, “What distinguishes the class action waiver here…is the prohibition on seeking plan-wide relief. ERISA explicitly allows plaintiffs to seek plan-wide relief… Because the class action waiver in this case cannot be squared with that statutory remedy, it is barred by the effective vindication doctrine.”

The court further ruled that the waiver was unlawful under ERISA’s exculpatory provision, which prohibits plan provisions that “diminish the statutory obligations of a fiduciary.” The court noted that courts have upheld some provisions banning class actions under Section 410(a), but those decisions did “not prevent individual plaintiffs from pursuing statutory remedies; they simply prevent plaintiffs from aggregating their claims with similarly situated individuals.” In this case, however, plaintiffs were not seeking individual relief. They sought equitable relief, including reformation or rescission of the plan and removal of the plan trustees. Thus, “By forbidding claimants from seeking all but individual relief, the Plan bars several types of relief that ERISA guarantees. While every individual claimant could bring his or her own separate action seeking individual relief, none of these individuals would be able to seek injunctive relief. Therefore, the Court agrees with Plaintiffs that the portion of the class waiver provision that proscribes plan-wide relief violates ERISA § 410(a).”

Having decided these threshold issues, the court turned to defendants’ Rule 12(b)(6) arguments regarding the merits of plaintiffs’ claims. The court ruled that (a) the third-party advisor for the 2020 transaction was a fiduciary trustee of the plan; (b) plaintiffs failed to allege that the trustee defendants engaged in self-dealing, and thus did not properly plead that they breached the duty of loyalty; (c) plaintiffs sufficiently alleged a deficient process in the evaluation of the 2020 transaction; (d) plaintiffs plausibly alleged that the Churchill defendants breached their duty of loyalty by misusing the plan’s annual dividend statements; (e) plaintiffs plausibly alleged that the Churchill defendants failed to monitor the plan trustees; (f) plaintiffs plausibly alleged that the CEO “knowingly participated” in a transaction prohibited by ERISA; and (g) plaintiffs properly pled that they were entitled to equitable relief from the CEO under ERISA in the form of disgorgement.

In short, the court largely rejected defendants’ arguments, including most notably their contentions regarding the effective vindication doctrine, and the case will proceed.

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

Disability Benefit Claims

Sixth Circuit

McEachin v. Reliance Standard Life Ins. Co., No. 2:21-CV-12819-TGB-EAS, 2024 WL 356989 (E.D. Mich. Jan. 26, 2024) (Judge Terrence G. Berg). Plaintiff Annette McEachin seeks benefits under an ERISA-governed long-term disability benefit plan. In March of 2023, the court partly granted McEachin relief, ruling that while she was no longer entitled to benefits for her physical disabilities, she had not exhausted her 24-month limit on benefits for mental conditions. (Your ERISA Watch covered this decision in its March 29, 2023 edition.) The court thus ordered Reliance to pay McEachin benefits until the 24-month period is exhausted, so long as she remains disabled because of mental impairment during that time. In response, Reliance filed a motion to amend the judgment and McEachin filed a motion for attorney’s fees, both of which were decided in this order. In its motion Reliance argued that the court misread the plan when it “delayed application” of the 24-month limit and allowed it to begin after McEachin’s physical disability ended. The court rejected this argument, finding that Reliance’s cases were distinguishable and noting that Reliance itself had determined during McEachin’s claim that her psychiatric symptoms were not disabling while it was paying benefits for her physical disability. Thus, she had not exhausted the 24-month mental illness benefit. As for McEachin’s attorney’s fees motion, the court granted it in its entirety because the parties “agree that the attorney fees and costs as proposed by Plaintiff are reasonable[.]” The court found that McEachin had achieved “some success on the merits” and satisfied the Sixth Circuit’s King factors, and thus an award was appropriate. The court ruled that the requested $275 per hour was reasonable for counsel Donald Busta, for 89.2 hours of work, which resulted in an award of $24,530. (After receiving this order, Reliance filed a notice of appeal, so this case is not over yet. Of course, we will let you know if and when the Sixth Circuit weighs in.)

Eighth Circuit

Pattee v. Hartford Life & Accident Ins. Co., No. 23-CV-2-CJW-KEM, 2024 WL 329528 (N.D. Iowa Jan. 29, 2024) (Judge C.J. Williams). Plaintiff Todd Pattee was a truck driver for Twin City Concrete Materials who was forced to stop working due to heart disease. In 2014 he submitted a benefit claim under Twin City’s employee long-term disability benefit plan, which was insured by defendant Hartford. Hartford initially approved Pattee’s claim, but terminated his benefits in 2019, contending that he no longer met the definition of disability. Pattee sued, and the parties filed cross-motions for judgment. Plaintiff contended that Hartford had a conflict of interest, that its decision denying his appeal was late, and that he was not given the right to review and respond to Hartford’s appeal deliberations as required under ERISA regulations. The court agreed that Hartford had a conflict of interest, but gave it little weight because any bias from that conflict was not evident in the record. The court also agreed that Hartford’s denial was late, but assigned this little weight as well. Hartford’s delay was not “nefarious”; it was only because Pattee’s appeal “simply slipped through the proverbial administrative cracks.” The court considered Pattee’s third argument to be more serious. The court agreed with Pattee that the 2018 version of ERISA’s claim procedure regulations applied, and thus Hartford had an obligation to provide its updated reports to Pattee for review and comment before denying his appeal. Hartford did not do so and thus Pattee did not receive a “full and fair review.” Because Pattee was not able to respond, the court considered the administrative record “incomplete” and thus “the Court cannot make a finding regarding whether defendant’s decision was arbitrary and capricious.” The court did indicate that “it is likely that defendant’s decision to terminate plaintiff’s benefits was not unreasonable,” given the evidence in Hartford’s favor, but because Pattee did not receive a full and fair review, the court chose to remand the case to Hartford for further proceedings. The court held Pattee’s request for attorney’s fees in abeyance because it had “not yet determined the merits of the dispute.”

Discovery

Ninth Circuit

Rampton v. Anthem Blue Cross Life & Health Ins. Co., No. 23-CV-03499-RFL-RMI, 2024 WL 332889 (N.D. Cal. Jan. 29, 2024) (Magistrate Judge Robert M. Illman). This is an action for ERISA-governed life insurance benefits by plaintiff Cheryl Rampton after the death of her husband, Audie Roldan. Defendant Anthem paid $25,000 in basic benefits, but denied Rampton’s claim for $300,000 in voluntary benefits, contending that Roldan did not provide the “evidence of insurability” which was required in order to obtain voluntary coverage. Rampton filed suit. During litigation, Anthem produced an administrative record which included redactions based on Anthem’s invocation of the attorney work product doctrine. Rampton contended that these redactions were improper under ERISA’s “fiduciary exception” and filed a discovery motion. In response, Anthem contended that the fiduciary exception only applied to attorney-client privileged documents, not attorney work product documents. The magistrate judge found this argument “disagreeable,” ruling that there was “no legitimate reason to cabin the fiduciary exception in the manner urged by Defendant.” Anthem also argued that it was not a fiduciary because it was not named as such in the plan and had “no control, direction, authority, obligations or any responsibility whatsoever over management or administration” of the plan. The court rejected this argument as well, noting that Anthem had the final authority to approve or deny claims under the plan: “It is difficult to understand how Defendant can simultaneously claim to merely be a detached outside service provider with no discretion or responsibility over plan management…while also conceding that it was interpreting and applying ‘the rules determining [Mr. Roldan’s] eligibility for benefits[.]’” However, although the court ruled in Rampton’s favor on these issues, this did not mean that she had an “all-access pass” to Anthem’s documents. The court stated that it could not conclude based on Anthem’s privilege log whether the redacted documents related to benefit eligibility, in which case they would be discoverable under the fiduciary exception, or whether they related to potential civil or criminal consequences of Anthem’s actions, in which case they would remain protected. The court thus granted Rampton’s motion to the extent the documents related to benefit eligibility. If Anthem contended otherwise, it was ordered to revise its privilege log with more detail so that its claims could be better assessed by Rampton and potentially the court.

ERISA Preemption

First Circuit

Prime Healthcare Servs. – Landmark, LLC v. Cigna Health & Life Ins. Co., No. 1:23-CV-00131-MSM-PAS, 2024 WL 361368 (D.R.I. Jan. 31, 2024) (Judge Mary S. McElroy). Plaintiff Landmark is a hospital in Woonsocket, Rhode Island that operates an emergency department. It contends in this action that it “provided emergency medical care to thousands of patients insured by Cigna healthcare plans, to the cost of millions of dollars,” that it did not have a provider agreement with Cigna setting specific rates, and that Cigna was required to reimburse it but “did not adequately reimburse Landmark at the level of its billed charges or any reasonable rate.” Landmark filed its complaint in state court, expressly disclaiming any potential claims covered by self-funded ERISA plans for which Cigna paid no benefits. Cigna removed to federal court based on ERISA preemption and diversity jurisdiction, and then filed a motion to dismiss, which was decided in this order. In response to the ERISA argument, Landmark argued that “it seeks a remedy for the amount of payment, not the right of payment,” and thus ERISA does not apply. Cigna responded that this distinction was irrelevant, but the court disagreed. The court ruled that “the question really is whether the rate of payment versus right of payment distinction survives the defensive preemption test” under ERISA’s “conflict preemption” analysis, not under the jurisdictional “complete preemption” analysis. Under this test, because Landmark had carved out ERISA claims, its “state-law claims, as pled, do not have an impermissible connection with an ERISA plan and therefore they are not preempted on that basis[.]” The court further ruled that Landmark’s claims did not “refer to” an ERISA plan because “the remedy that Landmark seeks is the reasonable rate, or fair market value, of the services it rendered. This calculation would require reference to no specific plan, ERISA or otherwise.” The court went on to address Landmark’s state law claims, which it found sufficient for pleading purposes. As a result, it denied Cigna’s motion in its entirety.

Third Circuit

Princeton Neurological Surgery, P.C. v. Aetna, Inc., No. CV-22-01414-GC-DEA, 2024 WL 328711 (D.N.J. Jan. 29, 2024) (Judge Georgette Castner). Plaintiff, a medical provider which performed surgery on a patient, brought this action alleging that defendant Aetna underpaid the insurance benefit claims arising from that surgery. Plaintiff’s complaint consisted of several common law causes of action against Aetna under New Jersey law. Aetna filed a motion to dismiss, contending that plaintiff’s claims were preempted by ERISA, which the court granted without prejudice on February 28, 2023. Plaintiff filed an amended complaint, but again alleged only state law claims. Aetna moved to dismiss, again arguing that plaintiff’s claims were preempted. The court granted Aetna’s motion in this order, ruling that plaintiff “has not materially altered the factual allegations” and “the amendments do not cure the defects or change the conclusion that the common law claims are expressly preempted.” The court stated that Aetna did not make any promise to pay separate from the plan terms, and that any obligation by Aetna was based on the plan. Thus, plaintiff’s claims were preempted. The court further ruled that even if plaintiff’s claims were not preempted, it would still dismiss because the alleged telephone calls between plaintiff and Aetna did not constitute a promise by Aetna to pay any particular amount. The court thus granted Aetna’s motion, this time with prejudice.

Ninth Circuit

California Spine & Neurosurgery Inst. v. Anthem Blue Cross Life & Health Ins. Co., No. 2:23-CV-00894-FLA-JCx, 2024 WL 382180 (C.D. Cal. Jan. 31, 2024) (Judge Fernando L. Aenlle-Rocha). Plaintiff, a medical provider, filed this action in California state court, bringing solely state law causes of cation, in which it alleged that defendant Anthem “failed to make proper payments and/or underpayments to [Plaintiff]…for surgical care, treatment and procedures provided to [its] Patient[s.]” Anthem removed the case to federal court on ERISA preemption grounds, after which it filed a motion for judgment on the pleadings. Plaintiff filed a motion to remand. The court agreed with Anthem’s preemption argument because plaintiff “seeks reimbursement of benefits that exist ‘only because of [Anthem’s] administration of ERISA-regulated benefits plans.’” The court thus denied plaintiff’s motion to remand. However, the court denied Anthem’s motion for judgment on the pleadings as moot because it granted plaintiff’s request for leave to amend its complaint to assert claims for relief under ERISA.

Life Insurance & AD&D Benefit Claims

Sixth Circuit

Transamerica Life Ins. Co. v. Douglas, No. 3:21-CV-00194, 2024 WL 390605 (M.D. Tenn. Feb. 1, 2024) (Magistrate Judge Barbara D. Holmes). This is an interpleader action in which the court was tasked with deciding who is entitled to ERISA-governed pension, 401(k), and life insurance benefits after the death of Jerry Douglas. The potential beneficiaries are his widow, Jingbin Douglas, his brother, Daniel Douglas, and his two adult children, Jed and Penny Douglas. The court likened the dispute to the fictional Jarndyce v. Jarndyce probate case in Charles Dickens’ Bleak House given the intensity of the litigation. After multiple procedural rulings, Penny settled with Jingbin and Jingbin filed a motion for summary judgment, which was decided in this order. Despite their prior activity in the case, Jed and Daniel did not file a proper response to the motion. Thus, the court deemed Jingbin’s facts as undisputed. The court stated that because Jingbin submitted evidence that she was married to Jerry, as supported by a ruling from Tennessee probate court, she was entitled to the pension benefits at issue. As for the 401(k) benefits, Jerry had designated Jingbin as a 25% beneficiary, but the plan provided that “a legally married spouse must be the sole beneficiary of any death benefits unless that spouse consents to the participant’s choice of a different beneficiary.” There was no evidence of any consent and thus Jingbin was entitled to the full benefit. Finally, the court ruled that Jerry’s beneficiary designation under his life insurance plan should be upheld, which resulted in Jingbin receiving the majority of the proceeds. The magistrate judge rejected Jed’s cross-claims for abuse of power and intentional infliction of emotional distress, ruling that Jed failed to advance these arguments on summary judgment. The court also rejected Jed’s cross-claim for partition, ruling that this issue had already been decided by the probate court and that he had failed to prosecute his claim. The court thus recommended that Jingbin’s motion for summary judgment be granted.

Ninth Circuit

Reliastar Life Ins. Co. v. Hill, No. CV 22-2476-KK-RAO, 2024 WL 400180 (C.D. Cal. Feb. 2, 2024) (Judge Kenly Kiya Kato). Plaintiff Reliastar filed this interpleader action, seeking declaratory relief regarding the rights of potential beneficiaries Michael Stills on one hand, and Janice and Kenneth Hill on the other, to $450,000 in ERISA-governed life insurance benefits. The case was tried to the court, which issued this order. The decedent, Amy Stills, was the daughter of the Hills and married to Stills when she was diagnosed with cancer. Before dying, she filed for a domestic violence restraining order against Stills, signed a change of beneficiary form from Stills to the Hills, and filed for divorce from Stills. The court heard testimony from four witnesses, and found that there was no evidence of mental incompetency, duress, or undue influence upon the decedent. As a result, the court ruled that Amy’s beneficiary change from Stills to the Hills was valid and enforceable. Stills contended that he was still entitled to half of the benefits under California’s community property laws. However, the court stated that “payment of benefits is ‘a central matter of plan administration’” under ERISA “and thus, any state law that conflicts or relates to the administration of benefits is preempted.” Judgment was thus entered in favor of the Hills.

Medical Benefit Claims

Tenth Circuit

Robert D. v. Blue Cross of Cal., No. 2:20-CV-138-HCN-DAO, __ F. Supp. 3d __, 2024 WL 340828 (D. Utah Jan. 30, 2024) (Judge Howard C. Nielson, Jr.). Plaintiffs Robert D. and his daughter, K.D., filed this action seeking payment of benefits under an ERISA-governed medical benefit plan insured by defendant Anthem Blue Cross. Plaintiffs’ claims arose from treatment received by K.D. at Fulshear Treatment to Transition, a treatment facility for mental health disorders and substance abuse. Anthem denied plaintiffs’ claims on the ground that K.D.’s treatment was not medically necessary. Plaintiffs brought this action, and the parties filed cross-motions for summary judgment. Plaintiffs first contended that Anthem’s denial “was procedurally flawed because Anthem improperly ‘disregarded’ the ‘opinions’ of K.D.’s treating providers by failing to ‘meaningfully’ engage with those opinions during the appeal.” The court rejected this argument, noting that Anthem’s doctors discussed K.D.’s case with her doctors and reviewed 940 pages of medical records. Plaintiffs contended that the court should not review the internal notes of Anthem’s doctors, and that its review should be limited to the denial letters themselves. However, the court stated that ERISA’s claim procedure regulations allow an administrator to either set forth a rationale for its determination, or provide that rationale upon request. Here, Anthem chose the latter, and provided its file, which included the notes of its reviewers, and thus there was no procedural violation. Having disposed of plaintiffs’ procedural argument, the court next addressed whether, under de novo review, Anthem’s denial should be upheld. The court was “unable to conclude, based on the administrative record, that Anthem’s determination that K.D.’s behaviors did not risk serious harm absent structured 24-hour care was correct.” The record showed that K.D. was having issues with sexual boundaries and Anthem did not explain why her treatment was not necessary to prevent her dangerous behavior. Anthem contended that its internal notes showed that its denial was justified because K.D.’s symptoms were not a deterioration of her usual status. However, the court stated that Anthem did not provide this rationale in its denial letters, and thus the court would not consider it in determining whether benefits should be paid. Despite these rulings, the court did not overturn Anthem’s decision. The court ruled that Anthem may have “failed to make adequate factual findings or failed to adequately explain the grounds for the decision,” but “‘the evidence in the record’ does not ‘clearly show that the claimant is entitled to benefits.’” Thus, “the court concludes that a remand is appropriate.”

Pension Benefit Claims

Third Circuit

Hamrick v. E.I. Du Pont De Nemours & Co., No. C.A. 23-238-JLH, 2024 WL 359240 (D. Del. Jan. 31, 2024) (Magistrate Judge Laura D. Hatcher). In this case, several participants in a defined benefit pension plan sponsored by E.I. Du Pont de Nemours & Co. (DuPont) brought two putative class actions (referred to as the “Manning Action” and the “Hamrick Action”) challenging the interest rate assumptions used by the plan fiduciaries in calculating certain spousal benefits. The named plaintiffs in the two actions, which were consolidated, asserted claims for both statutory violations and fiduciary breach with respect to these assumptions. DuPont moved to dismiss. In this decision, a Magistrate Judge denied the motion with one exception. With respect to the Manning Action, the court held that: (1) Mr. Manning stated a claim that DuPont violated ERISA’s statutory requirement that if a plan offers two or more spousal annuity options, it must ensure that they are actuarial equivalents; (2) Mr. Manning waived his claim under ERISA’s anti-forfeiture provision and that claim was therefore dismissed; and (3) Mr. Manning stated a claim that the actuarial assumptions used by the fiduciaries were unreasonable and therefore in violation of their fiduciary duties because they were based on outdated mortality tables that did not ensure that the spousal benefits were actuarily equivalent to a single life annuity. With respect to the Manning Action, the court rejected DuPont’s argument that fiduciaries cannot violate their fiduciary duties by simply following the plan terms. The court recognized that ERISA expressly provides that its requirements trump contrary plan terms and therefore fiduciaries do violate their fiduciary duties by following plan terms that violate ERISA’s requirements, such as ERISA’s actuarial equivalence requirement. Finally, the court rejected DuPont’s contention that the claims in both actions should be dismissed as untimely. The court agreed with DuPont that a one-year statute of limitations was applicable under Delaware law to plaintiffs’ statutory claims, but held that DuPont had not met its burden of establishing that plaintiffs’ claims accrued more than a year before they filed suit because it did not show when the plaintiffs had notice that something was amiss with regard to their benefit calculations. For similar reasons, the court held DuPont could not show that plaintiffs had actual knowledge of the facts establishing fiduciary breach more than three years before filing suit. 

D.C. Circuit

Saunders v. Saunders, No. 23-CV-2154 (DLF), 2024 WL 358181 (D.D.C. Jan. 31, 2024) (Judge Dabney L. Friedrich). Plaintiff Deborah A. Saunders brought this pro se action in the Northern District of Georgia against her ex-husband, Malachiah Saunders, and the Pension Benefit Guaranty Corporation. She contends that she is entitled to benefits pursuant to Mr. Saunders’ participation in General Motors’ pension plan (PBGC took over GM’s pension plan in 2009), and a subsequent qualified domestic relations order (QDRO). The Georgia court dismissed Mr. Saunders from the case due to lack of personal jurisdiction, and transferred Ms. Saunders’ remaining PBGC claims to the District of Columbia. PBGC then filed a motion to dismiss, which was granted in this order. The court ruled that Ms. Saunders’ claims did not plausibly allege that she was entitled to benefits because she did not “quote, cite, or summarize” the terms of the GM plan. Furthermore, Ms. Saunders did not adequately plead that she was entitled to benefits pursuant to a QDRO because she alleged no facts regarding any “judgment, decree, or order in her favor.” Ms. Saunders contended that a federal court should have signed her QDRO, but the court noted that QDROs are state law creations and cannot be issued by federal courts. As a result, the court granted PBGC’s motion to dismiss, but gave Ms. Saunders 30 days to amend her complaint to fix the identified deficiencies.

Pleading Issues & Procedure

Ninth Circuit

Mattson v. Milliman, Inc., No. C22-0037 TSZ, 2024 WL 340589 (W.D. Wash. Jan. 30, 2024) (Judge Thomas S. Zilly). This is a fiduciary breach class action pertaining to the management of The Milliman Profit Sharing and Retirement Plan. Defendants filed motions to exclude the opinions and testimony of two of plaintiffs’ expert witnesses, Horacio A. Valeiras and Arthur B. Laffer (presumably the same Laffer who created the famous Laffer Curve). Valeiras was designated to testify as to damages calculations. Defendants contended that Valeiras’ model was tailored to the wrong components of damages, and that he included too many investors in his calculations. The court rejected these arguments, determining that Valeiras’ opinions were not unreliable simply due to the scope of his analysis, and that defendants could challenge them at trial. As for Laffer, defendants argued that he should not be able to testify regarding whether the funds at issue should have been removed from the plan prior to 2016 because their performance history was too short and ERISA’s six-year statute of repose barred such opinions. The court ruled that the first argument went to the weight of Laffer’s testimony, not its admissibility, and that decisions prior to 2016 might be relevant in deciding whether the plan acted prudently in subsequently retaining the funds. Defendants further argued that some of Laffer’s testimony was contrary to law or not supported by surveys, studies, or research. The court again concluded that these objections went to the weight of Laffer’s testimony, and that given “his extensive experience in the investment industry and as a fiduciary advisor, the Court concludes that these opinions cannot be excluded prior to trial.” The court thus denied defendants’ two motions in their entirety.

Provider Claims

Third Circuit

BrainBuilders, LLC v. Aetna Life Ins. Co., No. 17-03626 (GC) (DEA), 2024 WL 358152 (D.N.J. Jan. 31, 2024) (Judge Georgette Castner). Plaintiff BrainBuilders provides autism therapy services. In a 156-page amended complaint it and other related plaintiffs have asserted fifteen claims for relief under state law as well as ERISA against defendant Aetna, contending that Aetna either failed to pay or underpaid for treatment by BrainBuilders from 2014 through 2022 in the amount of $50 million. Plaintiffs contends that Aetna used to reimburse claims at about 90% of BrainBuilders’ billed rate, but in 2014, without explanation, Aetna began reimbursing at “much lower … and inconsistent rates that do not adhere with any coverage or reimbursement provisions under the [plans].” The case was stayed while the Third Circuit decided Am. Orthopedic & Sports Med. v. Indep. Blue Cross Blue Shield, 890 F.3d 445 (3d Cir. 2018), in which the appellate court held that “anti-assignment clauses in ERISA-governed health insurance plans as a general matter are enforceable.” Plaintiffs amended their complaint, after which Aetna filed a motion to dismiss, which was decided in this order. The court ruled that: (a) the non-BrainBuilders individual plaintiffs had Article III standing to bring the action because of the ongoing threat of a collectable debt; (b) under Third Circuit law BrainBuilders was “foreclosed from pursuing ERISA claims via derivative standing where the plans contain valid anti-assignment provisions,” and that Aetna had not waived that defense; (c) plaintiffs’ claims for payment of plan benefits did not adequately identify plan provisions requiring payment; (d) there is no independent cause of action under ERISA for denial of a full and fair review; (e) plaintiffs’ claim for failure to provide plan documents lacked sufficient detail regarding their requests; (f) BrainBuilders’ state law claims were preempted by ERISA because they arose “not from a freestanding agreement reached with Aetna, but from the ERISA plans’ coverage for out-of-network services”; and (g) plaintiffs’ state law claims, even if not preempted, were inadequately pled under New Jersey law. As a result, the court granted Aetna’s motion to dismiss, and gave plaintiffs 45 days to file a further amended complaint.

Statute of Limitations

Tenth Circuit

B.M. v. Anthem Blue Cross & Blue Shield, No. 1:22-CV-00098-JNP-JCB, 2024 WL 360830 (D. Utah Jan. 31, 2024) (Judge Jill N. Parrish). Plaintiffs brought this action contending that defendant Anthem Blue Cross wrongfully denied their claims for benefits arising from medical care at a residential treatment facility. Anthem responded by filing a motion to dismiss, arguing that plaintiffs’ claims were time-barred by the benefit plan’s one-year limitation period. Plaintiffs argued that an alternative provision in the plan provided a three-year limitation period, the plan was ambiguous as to which provision governed, and thus the plan should be construed in their favor. Indeed, one plan provision stated, “You have the right to bring a civil action in federal court under ERISA Section 502(a)(1)(B) within one year of the appeal decision,” while another, under the heading “Legal Action,” stated that participants “may not take legal action against us to receive benefits…[l]ater than three years after the date the claim is required to be furnished to us.” The court ruled that the plan was not ambiguous and should be understood to mean that claims for benefits brought under ERISA Section 502(a)(1)(B) must be brought within one year, while other claims could be brought within three years. (The court did not explain how a “legal action against us to receive benefits” under the three-year provision could be brought in a way that did not invoke Section 502(a)(1)(B) under the one-year provision.) Under this interpretation, because plaintiffs’ claims were brought under Section 501(a)(1)(B), the one-year limitation applied, and thus, the court granted Anthem’s motion and dismissed the case.

Statutory Penalties

Ninth Circuit

Zavislak v. Netflix, Inc., No. 5:21-CV-01811-EJD, 2024 WL 382448 (N.D. Cal. Jan. 31, 2024) (Judge Edward J. Davila). Plaintiff Mark Zavislak is a beneficiary of defendant Netflix’s health benefit plan for its employees. He made several requests to Netflix for plan documents and documents related to plan administration, and received unsatisfactory responses. He then initiated this action alleging various statutory violations of ERISA, including a Section 104 violation (failure to produce plan documents) and a claim that Netflix did not operate the plan in accordance with written documents. The case proceeded to trial and the court issued this surprisingly lengthy order deciding the matter. After dispensing with various evidentiary motions, which included rejecting Zavislak’s motion to exclude Netflix’s expert witness, the court tackled the merits. Zavislak contended that under Section 104 Netflix was obligated to produce not only the plan documents, but also administration agreements and various internal documents used by third parties to adjudicate claims. The court, noting that the Ninth Circuit had “narrowly interpreted” Section 104, ruled that ERISA did not require Netflix to produce any of the claims administration agreements or internal documents at issue because they did not “govern the relationship between the plan provider and the plan participants,” and instead “relate only to the manner in which the plan is operated.” As for the plan documents themselves, the court ruled that Netflix had produced the most recent version, as requested, but agreed that it had not produced the documents in a timely fashion. The court noted mitigating factors, however, including that Netflix had not acted in bad faith and that Zavislak’s first request had occurred during the COVID pandemic during which the Department of Labor had suspended deadlines. Also, Netflix had acted promptly upon receiving Zavislak’s second request. As a result, the court exercised its discretion to award a reduced statutory penalty of $15 per day, which totaled $6,465. As for Zavislak’s claim that Netflix did not operate its plan according to a written instrument, the court ruled in favor of Netflix. The court stated that the erroneous provisions in the plan identified by Zavislak were in fact scrivener’s errors, and found that Netflix amended its plan in accordance with valid procedures set forth in the plan. As a result, Zavislak was only victorious on one of his claims, and received a significantly reduced award on it.

It appears that the winter holidays are truly over now, as the pace has picked up and the federal courts have issued more ERISA-related decisions. No one case in particular stood out this week, but there were plenty of entertaining facts and issues. Read on to learn about (a) potential transgender discrimination in medical benefits, (b) a $2.6 million settlement of a proton beam therapy class action, (c) a suit demanding that medical insurers in New Mexico pay for cannabis treatment, (d) whether the widow of a supermarket chain’s CFO can recover accidental death benefits arising from the CFO’s plane crash, and, perhaps most interesting for plaintiff’s attorneys such as yours truly, (e) whether an employee benefit plan can recover an overpayment from a claimant’s counsel (spoiler: maybe, but not this time!).

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

Breach of Fiduciary Duty

Seventh Circuit

Abel v. CMFG Life Ins. Co., No. 22-CV-449-WMC, 2024 WL 307489 (W.D. Wis. Jan. 26, 2024) (Judge William M. Conley). Three employees of CMFG Insurance Company brought this putative class action alleging that defendants, who were responsible for investing assets in CMFG’s 401(k) plan, “imprudently retained investments in ‘BlackRock LifePath Index Funds’ despite their poor performance and the availability of other, better-performing, target date funds.” Defendants moved to dismiss. The court largely skipped over defendants’ standing argument, finding that at a minimum plaintiffs had standing to bring their breach of fiduciary duty claim. The court focused instead on the merits, and ruled that plaintiffs’ allegations that CMFG’s funds compared poorly to other identified funds were insufficient. “In short, plaintiffs ask this court to infer with the benefit of hindsight unavailable to the Committee that defendants committed a breach of their fiduciary duty simply because the BlackRock TDFs ultimately underperformed in comparison to the Comparator TDFs.” The court found that plaintiffs’ comparator funds were not “meaningful benchmarks” under Seventh Circuit precedent because some of those funds were actively managed, as opposed to the passively managed CMFG funds, and because they were designed to invest “through retirement” rather than “to retirement.” Also, plaintiffs selected an unduly short time frame for comparison, the CMFG funds were not always underperformers during that period, and the CMFG funds offered lower fees. The court thus granted defendants’ motion to dismiss, but gave plaintiffs leave to amend to address the identified deficiencies.

Ninth Circuit

Chea v. Lite Star ESOP Committee, No. 1:23-CV-00647-JLT-SAB, 2024 WL 280771 (E.D. Cal. Jan. 25, 2024) (Magistrate Judge Stanley A. Boone). Plaintiff Linna Chea, a former employee of B-K Lighting, Inc., brought this action under ERISA on behalf of the Lite Star Employee Stock Ownership Plan (ESOP) against several defendants, contending that they “violated ERISA through the ESOP’s purchase of stock” in December of 2017 and through “the failure of the Plan’s fiduciaries to remedy fiduciary violations in the ESOP Transaction, and the resulting loss of millions of dollars by the ESOP and its participants.” The defendants brought three separate motions to dismiss, raising numerous arguments, all decided in this order. In a lengthy decision, the magistrate judge ruled that (1) plaintiff had standing to bring her claims because she “adequately pleads that her (and the ESOP’s) economic injury is the direct result of the Defendants’ failure to properly evaluate and take into account problems with the Company’s operations, management, and financial reporting,” (2) plaintiff was allowed to sue one of the individual defendants as a “legal successor” of a deceased company officer, (3) plaintiff’s allegations were sufficient to establish that defendants were fiduciaries under ERISA, and (4) plaintiff adequately pled claims under ERISA for prohibited transactions, breach of fiduciary duty, failure to monitor, and co-fiduciary liability. However, the court did find that plaintiff’s claim for breach of fiduciary duty relating to indemnification provisions between the ESOP and its fiduciaries was time-barred because the provisions were adopted more than six years ago, in 2016. Apart from this one issue, however, the magistrate judge recommended denying all three motions to dismiss in all respects.

Tenth Circuit

Schissler v. Janus Henderson US (Holdings) Inc., No. 22-CV-02326-RM-SBP, 2024 WL 233141 (D. Colo. Jan. 22, 2024) (Judge Raymond P. Moore). This is a putative class action by participants in the Janus Henderson defined contribution employee 401(k) benefit plan alleging that defendants “breached their fiduciary duty of prudence by offering inappropriate investment options and their fiduciary duty of loyalty by benefiting from the Plan at Plaintiffs’ expense.” Defendants filed a motion to dismiss, which was referred to a magistrate judge. The magistrate judge ruled that (a) plaintiffs had standing to bring their claims, (b) writing and amending the plan were settlor functions, and thus plaintiffs could not bring a fiduciary breach claim against defendants based on those actions, (c) plaintiffs adequately pled a fiduciary breach claim for “failing to remove underperforming funds or to employ a reasonable selection process for investment options,” and (d) the plan’s advisory committee was a proper defendant because it was a fiduciary with respect to the offering of the funds at issue. Both sides filed objections to the magistrate judge’s decision, which were addressed by the district court judge in this ruling. Plaintiffs were largely satisfied with the magistrate judge’s decision, but objected “to the extent it suggests that the acts of selecting and monitoring the investments in a 401(k) plan are not subject to ERISA’s fiduciary standards.” The district court clarified that the ruling “does not state or suggest that selecting and monitoring the Plan’s investment options are not fiduciary functions,” only that the ruling drew a distinction between settlor functions in establishing the plan and administrative functions pertaining to how the plan was managed. The former could not be challenged while the latter could be, which is what the magistrate’s decision allowed. As for defendants, they raised numerous objections, all of which were overruled by the district court. The district court upheld the magistrate judge’s rulings that (a) the committee was a fiduciary with respect to the funds at issue, (b) the plan’s mandate regarding certain funds did not override ERISA’s duties of prudence and loyalty, (c) the company acted as both a settlor and a fiduciary at different times, exposing it to liability for breach of fiduciary duty, (d) plaintiffs provided meaningful benchmark funds for comparison, and (e) plaintiffs had standing to pursue their claims because under ERISA they were “entitled to represent the interests of other injured participants in a derivative capacity.” Thus, the district court upheld the magistrate judge’s recommendation in its entirety and largely denied defendants’ motion to dismiss.

Class Actions

Third Circuit

Molloy v. Aetna Life Ins. Co., No. CV 19-3902, 2024 WL 290283 (E.D. Pa. Jan. 25, 2024) (Judge Cynthia M. Rufe). This is a class action alleging that Aetna breached its fiduciary duty under ERISA by improperly denying requests for proton beam therapy (PBT) under health insurance plans it administered. On July 12, 2023, the court certified a settlement class, preliminarily approved a settlement, and scheduled a hearing regarding final approval of the settlement. The court held a fairness hearing on December 19, 2023, and issued this order approving the final settlement. The court ruled that all class action requirements were met because there were numerous plaintiffs (139), there were common issues of law and fact because all plaintiffs suffered from head, neck, or brain cancer and had their claims for PBT denied by Aetna on the ground that the treatment was experimental or investigational, and the named plaintiffs’ interests were in alignment with the class. Notice had been duly given to all class members. The court ruled that the settlement was fair, reasonable, and adequate because the parties had vigorously litigated the case, including through two motions to dismiss, the parties had conducted extensive discovery and reviewed significant claims data, plaintiffs had consulted with experts, and settlement negotiations took over two years. Furthermore, over half of the class had submitted valid claim forms, there were no objections, and only one person opted out. The parties had also addressed the court’s previous concern over a proposed cy pres award, which the court had indicated was too large, by reducing it and increasing the amount paid to class members. As a result, the court approved the settlement in the amount of $2,588,329.62, $1,750,224.96 of which will be paid directly to class members. Each class member will receive a payment between $20,000 and $40,000. The cy pres award to NRG Oncology, Inc. totaled $828,104.66. The court also approved plaintiffs’ request for $1,407,099.25 in attorneys’ fees, which will be paid separately.

Sixth Circuit

Davis v. Magna Int’l of Am., Inc., No. 20-11060, 2024 WL 280645 (E.D. Mich. Jan. 25, 2024) (Judge Nancy G. Edmunds). In March of 2023, the court denied the plaintiffs’ motion for class certification in this action alleging breach of fiduciary duty in the management and administration of the Magna Group Companies Retirement Savings 401(k) Plan. The court ruled that the two named plaintiffs were not adequate class representatives, and gave counsel time to find better ones. Counsel did so, filed an amended complaint, and conducted expedited discovery and briefing related to the new plaintiffs. They then filed a new motion for class certification, which was granted by the court in this order. Because the court had already considered the issues of class numerosity, commonality, and typicality in its previous order, and ruled in plaintiffs’ favor on those issues, it limited its analysis to the adequacy of the new representatives. The court found that the new plaintiffs had invested time and effort in the litigation, maintained contact with counsel, indicated that they understood their role in representing the class, and, most importantly, did not have criminal records like the prior representatives. The court also rejected defendants’ argument that the new plaintiffs had conflicts with the rest of the class: “All claims relate to mismanagement across all Plan investments, and all relief is tied to Plan losses, not to the loss of any individual fund. Neither the claims nor the relief sought pit investors against one another.” As a result, the court granted plaintiffs’ motion and certified the class.

Disability Benefit Claims

Fifth Circuit

Domino v. Guardian Life Ins. Co. of Am., No. CV 22-1760, 2024 WL 278984 (E.D. La. Jan. 25, 2024) (Judge Ivan L.R. Lemelle). Douglas Domino, Sr., who was employed by Gulf Coast Express Carriers, Corp. as a commercial truck driver, brought this action seeking benefits against Guardian, the insurer of Gulf Coast’s disability benefit plan. Guardian approved Domino’s short-term disability claim, but denied his claim for long-term disability benefits. The parties filed cross-motions for summary judgment which were decided in this order. In its motion, Guardian contended that benefits were not payable because Domino did not have coverage. Specifically, the case turned on whether Domino was “considered to be in ‘active full-time service’ within the meaning of the policy while on sick leave after exhausting his paid time off.” The court agreed with Guardian that any covered disability did not arise until after Domino had exhausted his PTO, at which time his coverage had terminated because he was no longer “actively at work” as defined by the policy. As a result, the court granted Guardian’s summary judgment motion, and denied Domino’s.

Seventh Circuit

Treslley v. The Guardian Life Ins. Co. of Am., No. 22-CV-494-WMC, 2024 WL 262812 (W.D. Wis. Jan. 24, 2024) (Judge William M. Conley). Plaintiff Jo Treslley was a director of financial operations for a non-profit organization who suffered from numerous medical issues, including diabetes, stress, cognitive issues, kidney disease, eye floaters, and orthopedic problems with her back, shoulder, and hand. Based on these issues, she stopped working and submitted a claim for long-term disability benefits to Guardian, the insurer of her employer’s benefit plan. Guardian denied Treslley’s claim on the ground that she did not “provide objective evidence that preclude[d] [her] ability to work in [her] own occupation throughout the elimination period and beyond.” Treslley appealed, but Guardian upheld its decision, so she brought this action. In this order the court resolved the parties’ cross-motions for summary judgment. The court ruled that (1) any error by Guardian in its vocational analysis of Treslley’s job was inconsequential, (2) the evidence regarding Treslley’s cognitive issues was mixed, which meant that the court was required to defer to Guardian under the arbitrary and capricious standard of review, and (3) Treslley’s other medical conditions, either individually or collectively, did not prevent her from returning to her own occupation because they were either stable or improving. Treslley argued that Guardian misrepresented facts about her condition, but the court ruled that “any inaccuracies are insufficient to undermine the conclusion that defendant’s determination was supported by the record.” The court also found that any procedural errors in the handling of Treslley’s claim were not prejudicial. Ultimately, “although a different decision on plaintiff’s claim could have been justified on this record, this court’s inquiry is more limited as a matter of law…[T]he inquiry is whether defendant’s decision was arbitrary and capricious, and the undisputed evidence shows that it was not.” The court thus granted Guardian’s summary judgment motion and denied Treslley’s.

Ninth Circuit

Gray v. United of Omaha Life Ins. Co., No. 2:23-CV-00630-MCS-PLA, 2024 WL 324899 (C.D. Cal. Jan. 29, 2024) (Judge Mark C. Scarsi). Plaintiff Kandice Gray brought this action seeking benefits under her employer’s ERISA-governed group disability benefit plan. Gray was a supervisor and mental health therapist for a community services organization who suffered from back pain as well as pain in her arms and hands. United of Omaha approved short-term disability benefits for a period, but terminated them and denied Gray’s claim for long-term benefits as well, contending that she did not meet the plan definition of disability. Gray sued, and the action proceeded to trial under de novo review. The court upheld United of Omaha’s decision, noting that Gray’s treatment history was “sparse,” her doctors did not have a specialty relevant to her orthopedic claims, the detail in her treatment notes was “thin,” her doctors did not “connect their findings to their opinions on Plaintiff’s functional limitations,” and “virtually all” of the supportive evidence in the record “rests on subjective reports by Plaintiff.” The court found United of Omaha’s medical reviews more persuasive because they were by relevant specialists and identified objective measures that could have been performed to corroborate Gray’s complaints but were not provided. The court further found that Gray’s receipt of state disability benefits, while supportive, was insufficient because she only submitted evidence of payment; she “neither cites nor offers documentation confirming a finding of disability or stating the grounds upon which that finding rests.” As a result, the court ruled that Gray had not met her burden of proving disability and entered judgment in United of Omaha’s favor.

Discovery

Seventh Circuit

Van Bergen v. Fastmore Logistics, LLC, No. 21 C 5796, 2024 WL 230950 (N.D. Ill. Jan. 22, 2024) (Magistrate Judge Jeffrey T. Gilbert). Plaintiff Paul Van Bergen is a former employee of Fastmore Logistics who seeks in this lawsuit to recover unit appreciation rights (UAR) benefits under Fastmore’s Equity Appreciation Plan. Van Bergen has also asserted a claim for interference with his benefits in violation of ERISA. Van Bergen contends that when he attempted to redeem his UAR benefits upon his resignation, Fastmore’s owner “advised Van Bergen that his UARs had not appreciated in value since the date they were issued, and therefore, he was not entitled to any payment for them.” Van Bergen alleges that defendants “arbitrarily manipulated” the value of his UARs, and filed a motion to compel seeking discovery from defendants regarding how the UARs were, and should be, calculated. The court concluded that the circumstances in this case “give rise to a conflict of interest” because the Fastmore owner, who denied Van Bergen’s claim, was the sole member/shareholder of Fastmore, the sole manager of the plan, and “benefited financially from denying Van Bergen any redemption value for his vested UARs.” Therefore, the court ruled that Van Bergen was entitled to conduct discovery. However, the court also noted that the Seventh Circuit “disfavors extensive discovery in ERISA cases.” Thus, while the court allowed Van Bergen to take the two depositions he sought, including of the owner, it limited the scope of the depositions such that Van Bergen could not ask questions about the valuation or sale of Fastmore one year before his redemption request. The court also did not agree with Van Bergen that he was entitled to greater leeway in discovery because of his interference claim. The court ruled that this claim “relies on the same conduct and seeks the same relief as his Section 502(a)(1)(B)” claim and thus additional discovery was unnecessary. The court further denied Van Bergen’s request for attorney’s fees in connection with his motion because the motion was only “partially successful,” and because defendants’ opposition “was substantially justified given the developing law in this area.”

ERISA Preemption

Tenth Circuit

New Mex. Top Organics-Ultra Health, Inc. v. Blue Cross & Blue Shield of New Mex., No. 1:22-CV-00546-MV-LF, 2024 WL 260935 (D.N.M. Jan. 24, 2024) (Magistrate Judge Laura Fashing). Plaintiffs brought this action in New Mexico state court against Blue Cross & Blue Shield of New Mexico and other insurer defendants seeking damages and declaratory relief that “would compel health plans and health insurance issuers in New Mexico to pay for the cost of cannabis distributed under [New Mexico’s] Lynn and Erin Compassionate Use Act.” Defendants removed the case to federal court, contending that the court had original jurisdiction under the federal Class Action Fairness Act, and that the claims of at least two plaintiffs were preempted by ERISA. Plaintiffs filed a motion to remand, which was decided in this order. The magistrate judge agreed that defendants met their burden to establish that the court had original jurisdiction over the case under CAFA. As for ERISA, the magistrate judge found that the two plaintiffs at issue were covered under ERISA-governed benefit plans, and were seeking benefits in the action under those plans. In order to adjudicate these claims, the court ruled that it needed to interpret the benefit plans at issue “to determine what benefits the plans afford for medical cannabis, what cost sharing the plans impose on medical cannabis, and whether Cigna and True Health have failed to provide the benefits afforded by the plans.” As a result, their claims “related to” ERISA and were preempted by it. Plaintiffs contended that they had “carved out” any ERISA claims in their first amended complaint, which they filed after removal, but the court ruled that the amended complaint was irrelevant: “the Court can only consider the complaint at the time of removal in deciding whether removal was proper and whether the case should be remanded.” In short, the plaintiffs could not “amend away federal jurisdiction.” As a result, the magistrate judge recommended that the court deny plaintiffs’ motion to remand.

Eleventh Circuit

Silverman v. Sun Life & Health Ins. Co., No. 1:22-CV-22339, 2024 WL 262531 (S.D. Fla. Jan. 24, 2024) (Judge Darrin P. Gayles). Plaintiff Cheryl Silverman, who already had individual disability insurance with MetLife, bought a group disability policy from a predecessor insurer of defendant Sun Life. Silverman alleges that she was seeking supplemental coverage, and consistent with that desire she was informed that the two policies did not offset each other. However, Silverman’s original policy was replaced with a new policy that did contain an offset provision. When she became disabled, Sun Life, invoking the offset provision, only paid her the minimum benefit. Silverman filed suit in Florida state court for fraudulent inducement, negligent misrepresentation, and violations of the Illinois Consumer Protection Act and Connecticut Unfair Trade Practices Act. Sun Life removed the case to federal court, contending that Silverman’s claims were preempted by ERISA, and filed a motion to dismiss. In this order the court ruled that Silverman’s claims were not preempted because she was not challenging the terms of the benefit plan or seeking an interpretation of the plan. Instead, she was challenging the insurer’s representations made before the formation of the plan. The insurer was not acting “in its capacity as an ERISA entity. Rather, it was acting as the seller of an insurance product.” As a result, “at this stage of the litigation, the Court finds that Plaintiff’s claims do not ‘relate to’ an ERISA plan and, therefore, are not defensively preempted.” The court thus denied Sun Life’s motion.

Life Insurance & AD&D Benefit Claims

Second Circuit

Sarno v. Sun Life & Health Ins. Co., No. 2:22-CV-00968-JMA-LGD, 2024 WL 291624 (E.D.N.Y. Jan. 25, 2024) (Magistrate Judge Lee G. Dunst). Nicholas Sarno was an employee of Nikon, Inc. for nearly 35 years and a participant in Nikon’s employee group life insurance benefit plan, which was insured by defendant Sun Life. The policy had an accelerated death benefit for those suffering from terminal illnesses, and gave participants the right to convert their group coverage to individual coverage. Unfortunately, Mr. Sarno was diagnosed with stage IV pancreatic cancer and began a disability leave of absence. During this time Mr. Sarno had several conversations with Nikon, who allegedly never informed him of the accelerated benefit. He also had several conversations with Sun Life about converting his coverage, but Sun Life allegedly gave him misinformation about how to do so, and therefore he missed the deadline. After Mr. Sarno died, plaintiff Cathleen Sarno filed a claim for benefits, which Sun Life denied. She then filed this action against Nikon and Sun Life, alleging three claims: (1) breach of fiduciary duty for failure to adequately inform of the accelerated benefit; (2) breach of fiduciary duty for failure to adequately inform of conversion rights; and (3) a claim for benefits. The Nikon defendants filed a motion to dismiss, which was decided in this order. The magistrate judge recommended “granting the Nikon Defendants’ Motion to dismiss Count 3 for lack of standing under Article III of the U.S. Constitution and to dismiss Counts 1 and 2 as duplicative of Count 3.” Specifically, the court ruled that plaintiff could not pursue a claim for benefits because she “fails to plead an adequate line of causation between her alleged injury and the Nikon Defendants’ actions… Plaintiff does not and cannot allege that the Nikon Defendants had any role in the conversion process nor any role in determining the eligibility of the Accelerated Benefit. It is undisputed that Sun Life was responsible for that.” The court noted that plaintiff had not alleged that Nikon ever spoke to Mr. Sarno about the accelerated benefit or any conversion deadlines, and thus “no causal connection exists between the Nikon Defendants’ conduct and Plaintiff’s injury.” As for the breach of fiduciary duty claims, because plaintiff sought to recover the accelerated death benefit under those claims, and relied on the same facts to support her claims, the court ruled that those claims were “duplicative…repackaged claims for the same benefits” and recommended that they be dismissed as well.

Ninth Circuit

Mueller v. Lincoln Nat’l Life Ins. Co., No. 2:23-CV-00919-WBS-JDP, 2024 WL 307789 (E.D. Cal. Jan. 26, 2024) (Judge William B. Shubb). Kenneth Mueller was the CFO of the supermarket chain Raley’s. On September 4, 2022, he was flying in a private twin-engine aircraft with Raley’s chief pilot. The purpose of the flight was for Mr. Mueller to learn how to operate the plane, as he was not yet qualified to fly it by himself. The plane crashed, killing both men. Mr. Mueller’s wife, plaintiff Brigitte Mueller, submitted a claim for accidental death benefits to defendant Lincoln, the insurer of Raley’s group life insurance employee benefit plan. Lincoln denied the claim, contending that Mr. Mueller’s death fell under the plan’s aircraft exclusion. Ms. Mueller sued, and the case was tried under de novo review. Ms. Mueller argued that Lincoln should pay benefits because Mr. Mueller’s death satisfied an exception to the aircraft exclusion, which allows coverage if the insured is “traveling as a passenger in any aircraft that is owned or leased by or on behalf of the Sponsor.” Lincoln responded that Mr. Mueller was not a “passenger” under this exception because he was a student pilot. The court reviewed case law regarding the difference between passengers and pilots, ultimately concluding that after “examining the policy as a whole and construing the exception to the aircraft exclusion broadly…a student pilot such as decedent qualifies as a ‘passenger.’” At a minimum, the undefined term “passenger” was ambiguous, which “would require the court to adopt the interpretation favoring coverage, leading to the same result.” However, the court sided with Lincoln on the issue of whether the aircraft was “owned or leased by or on behalf of” Raley’s. The parties agreed that Raley’s did not own the plane, and there was no evidence in the record of who did, or that Raley’s had leased it in the traditional sense. As a result, Ms. Mueller failed to meet her burden of proving that the exception to the exclusion applied. The court entered judgment for Lincoln.

Medical Benefit Claims

Third Circuit

Doe v. Independence Blue Cross, No. CV 23-1530, 2024 WL 233216 (E.D. Pa. Jan. 22, 2024) (Judge Timothy J. Savage). Plaintiff Jane Doe is a transgender woman who sued her health insurance provider, defendant Independence Blue Cross (IBX), under several state and federal laws after IBX denied her coverage for facial feminization surgeries as treatment for gender dysphoria. On November 21, 2023, the court granted defendant Independence Blue Cross’ motion to dismiss several of plaintiff’s claims, leaving her only two: one for medical benefits under ERISA, and the other for violation of the Affordable Care Act (“ACA”) and Title IX for impermissible gender stereotyping. IBX subsequently filed a motion for summary judgment, which was decided in this order. The court identified the primary issue in the ACA and Title IX claims as “whether IBX intentionally discriminated against Doe on the basis of her nonconformity to a gender stereotype.” The court ruled that a jury could reasonably find discrimination because “IBX representatives repeatedly cited the gender stereotyping language throughout Doe’s appeal.” As for plaintiff’s ERISA claim, the court found there was “an issue of fact as to whether IBX’s interpretation was ‘reasonably consistent’ with the text of the cosmetic procedure exclusion” in the benefit plan. The conflicting interpretations of IBX’s own reviewers showed that the exclusion was ambiguous and thus “a reasonable fact finder could find that IBX applied a physical defect requirement and ignored Doe’s impaired social and occupational functioning in a way that is not ‘reasonably consistent’ with the plan’s text.” The court did, however, rule that plaintiff was not entitled to punitive or emotional distress damages as a matter of law under any of her claims. Other than this ruling on remedies, the court denied IBX’s summary judgment motion in its entirety.

Tenth Circuit

S.T. v. United Healthcare Ins., No. 4:21-CV-00021-DN-PK, 2024 WL 233328 (D. Utah Jan. 22, 2024) (Judge David Nuffer). This is yet another Utah case challenging a denial of medical benefits for residential mental health treatment. The plaintiffs, S.T. and his son J.T., seek benefits for J.T.’s treatment at Ashcreek Ranch Academy. United Healthcare, the insurer of the employee medical benefit plan under which J.T. had coverage, denied plaintiffs’ claims on the ground that his treatment was not “medically necessary,” as that term is defined by the plan. Plaintiffs filed suit, alleging one claim for plan benefits and one claim alleging that United’s plan violated the Parity Act. The parties filed cross-motions for summary judgment, which were decided in this order under de novo review. The court began by admitting into evidence Ashcreek’s billing records and claim submissions, ruling that these documents were relevant to determining whether the treatment at issue was medically necessary. The court then reviewed the time period at issue and ruled that United’s denial was incorrect for a 25-day period from December 30, 2017 to January 23, 2018. During this period J.T. “reported two attempts to commit suicide to a therapist during the week of January 3, 2018” and “it was reported that J.T. was hallucinating on January 2, 2018, and January 12, 2018.” As a result, J.T. met the requirements for medical necessity at that time. However, for the remaining dates at issue – December 13-29, 2017 and January 24, 2018 to March 31, 2019 – the court ruled in United’s favor. During these times the court found that plaintiffs failed to cite to pertinent treatment notes or support in the administrative record, or the documents in the record did not show that J.T.’s condition was serious enough to warrant residential treatment. As for plaintiffs’ Parity Act claim, the court ruled that plaintiffs had standing to pursue it, but rejected it on the merits because plaintiffs did not establish that United’s criteria for mental health treatment were more restrictive than its criteria for other health conditions.

Pension Benefit Claims

Sixth Circuit

Hill v. Cleveland Bakers & Teamsters Pension Fund, No. 1:22-CV-2073, 2024 WL 262252 (N.D. Ohio Jan. 24, 2024) (Judge J. Philip Calabrese). In 2021, David Hill, Sr., contemplating retirement, applied to his pension fund for benefits and received approval. However, he died only weeks later, before the fund paid any benefits. When his son, plaintiff David Hill, Jr., submitted a posthumous claim for benefits, the fund denied his claim, and he brought this action. The parties filed cross-motions for judgment which were decided in this order. The case turned on the language of the plan, which provided for a two-month waiting period between the date a retiree submits an application for a pension and the date benefits are first paid. The court ruled that because the father had passed away during the waiting period, he never became entitled to a benefit under the terms and conditions of the plan, and thus the fund was not arbitrary and capricious in denying his son’s claim. The son argued that while his father may have passed away before benefits were scheduled to begin, under the plan his eligibility for those benefits occurred earlier, before he died. However, the court rejected this interpretation, ruling that even if the son’s argument was plausible, he could not prevail: “Defendants’ interpretation of the Plan represents a principled reasoning process, does not render the provisions of the Plan meaningless or internally consistent, and is not arbitrary or capricious.” The court thus issued judgment in the fund’s favor.

Subrogation/Reimbursement Claims

First Circuit

Cutway v. Hartford Life & Accident Co., No. 2:22-CV-00113-LEW, 2024 WL 231453 (D. Me. Jan. 22, 2024) (Judge Lance E. Walker). Plaintiff Kevin Cutway began receiving long-term disability benefits in 2016 under an ERISA-governed employee benefit plan insured by defendant Hartford. Several years later, Hartford discovered that it had failed to offset Mr. Cutway’s monthly payments by the correct amount of disability benefits he was receiving from the Social Security Administration. It notified Cutway that it would stop making future payments until it had recouped $52,000 in overpayments. Cutway filed suit under 29 U.S.C. § 1132(a)(3), arguing that Hartford should be equitably estopped from exercising its contractual right to recoupment because the overpayments were the result of its own negligence. At the start of the case, the court granted Cutway’s request for a preliminary injunction ordering Hartford not to reduce his benefit while the litigation proceeded. The parties then filed cross-motions for judgment, which were decided in this order. The court was “not persuaded that the equities support a judicial decree that Hartford forfeited its right under the policy to offset against future payments the ‘overpayments’ associated with Mr. Cutway’s receipt of social security income benefits.” The court ruled that Hartford properly applied the terms of the plan, which were not contested by Cutway, that Cutway “was informed of and understood or should have understood that he was being overpaid LTD benefits due to his ongoing receipt of both unreduced LTD payments and monthly social security benefits,” and Hartford made repeated efforts to obtain accurate information from Cutway about his Social Security benefits. The court agreed that Hartford was “not entirely blameless” in its calculation of and pursuit of the overpayment, but this “relative lack of care in administration did not exceed Mr. Cutway’s own lack of care in the management of his funds.” As a result, the court rejected Cutway’s claim for equitable relief under ERISA, lifted the preliminary injunction, and entered judgment in Hartford’s favor.

Verizon Sickness & Accident Disability Benefit Plan for New Eng. Assoc. v. Rogers, No. 1:21-CV-00110-MSM-PAS, 2024 WL 323057 (D.R.I. Jan. 29, 2024) (Judge Mary S. McElroy). Defendant Jacqueline Rogers, an employee of Verizon, received $44,962.40 in benefits from plaintiff, Verizon’s ERISA-governed disability benefit plan. Her disability was due in part to an automobile accident, which resulted in her receiving a settlement of $100,000, $31,617.60 of which went to her attorney, co-defendant Richard Sands. Verizon sought reimbursement from Rogers pursuant to the terms of the plan, but she “apparently disappeared” and was never served. As a result, Verizon sought to recover from Sands. On summary judgment, the court ruled that Verizon’s lien was potentially enforceable against Sands, but did not grant Verizon’s motion because an issue of fact remained, i.e., whether Sands had dissipated the settlement proceeds so that they could not be traced by Verizon. (Your ERISA Watch covered this ruling in its March 22, 2023 edition.) The action proceeded to trial, where Sands produced an affidavit in which he asserted that the settlement funds were used to pay his operating expenses and thus Verizon could not trace them or equitably recover them. The court first discussed the burden of proof: whose burden was it to prove whether the funds had been dissipated? The court stated, “One would think that this question would be easily answered, but one would be wrong. The Court has not found, and the parties have not cited, any controlling authority clearly stating where the burden of proof lies on the dissipation issue.” The court ultimately concluded that logic, and language from Supreme Court precedent, suggested that the burden should be placed on Verizon. The court ruled that because Verizon was seeking an equitable remedy regarding an existing asset, it should be obligated to prove that the asset still exists. The court further found that Verizon did not meet this burden. The court noted that Verizon had presented no evidence on this issue and had made little effort during litigation to ascertain the contents of Sands’ bank accounts. Thus, because Verizon failed to meet its burden of showing that the funds had not been dissipated, Sands was entitled to judgment in his favor.