Your ERISA Watch is short-staffed this week as we take much-needed end of summer vacations. But ERISA never sleeps, so rather than leave our loyal readers in the lurch, we are still publishing, albeit with no highlighted case of the week. We hope you had a restful Labor Day!

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

Arbitration

Ninth Circuit

Scentsy, Inc. v. Blue Cross of Idaho Health Serv., Inc., No. 1:23-CV-00552-AKB, 2024 WL 3966555 (D. Idaho Aug. 28, 2024) (Judge Amanda K. Brailsford). Plaintiff Scentsy sponsors a self-funded employee health care benefit plan, which defendant Blue Cross of Idaho administers pursuant to a services agreement. Blue Cross also insures Scentsy’s plan for losses in excess of $200,000. One of Scentsy’s employees became ill and incurred “millions of dollars’ worth of medical bills,” but according to Scentsy, Blue Cross declined to process the benefit claims for this treatment in a timely fashion and then improperly denied them. Scentsy filed this action, and Blue Cross responded by filing a motion to compel arbitration, or, in the alternative, to partially dismiss and stay the case. The parties’ arguments regarding arbitration revolved around which contracts applied, as there were several between them on a yearly basis. The court ruled that the 2020 administrative services agreement and the 2021 excess loss contract were the controlling documents, and neither contained an arbitration provision, and thus the court denied Blue Cross’ motion to compel. As for Blue Cross’ motion to dismiss, the court refused to dismiss Scentsy’s equitable claim under ERISA § 1132(a)(3) because doing so was premature, although it indicated that ultimately Scentsy would not be allowed to obtain such relief if other relief under ERISA was adequate. The court also denied Blue Cross’ motion to dismiss most of Scentsy’s state and common law claims, ruling that Scentsy was allowed to plead such claims in the alternative, even though ERISA likely preempted them. The court did, however, dismiss Scentsy’s claim for unjust enrichment because both parties agreed that an enforceable contract existed, which precluded such a claim. As a result, the vast majority of Scentsy’s claims against Blue Cross will proceed.

Attorneys’ Fees

Sixth Circuit

Messing v. Provident Life & Accident Ins. Co., No. 23-1824, __ F. App’x __, 2024 WL 3950239 (6th Cir. Aug. 27, 2024) (Before Circuit Judges Clay, Rogers, and Kethledge). Your ERISA Watch’s case of the week in our September 14, 2022 edition was the Sixth Circuit’s published opinion in this matter in which it ruled that defendant Provident improperly terminated the ERISA-governed long-term disability benefits of plaintiff Mark Messing, a Michigan attorney. Despite his success, on remand the district court denied Messing’s motion for attorney’s fees, which as we commented in our August 30, 2023 edition was “very unusual for plaintiff-side victories in ERISA benefit actions.” So, it was no surprise that Messing appealed once again to the Sixth Circuit, which addressed the fee issue in this memorandum decision. The Sixth Circuit found that the district court properly held that Messing “achieved some success on the merits,” but ruled that the court improperly applied the controlling five-factor King test. The Sixth Circuit observed that the district court “largely pinned its analysis on the view that Provident did not engage in any culpable conduct or bad faith behavior,” but ruled that this was incorrect: “we view Provident’s repeated attempts to rid itself of its obligations to Messing as evidence of a highly culpable course of conduct.” Unfortunately for Messing, this was not the end of the opinion. Even though Messing was entitled to fees, the Sixth Circuit “cannot say that the district court abused its discretion in alternatively holding that Messing failed to carry his burden of showing that his requested fees and costs were reasonable.” The court ruled that Messing had carried “half of his burden” by showing that his requested hourly rates were reasonable. However, “Messing declined to submit any evidence tending to prove that the hours worked by his attorneys were reasonable.” Specifically, he did not submit itemized billing records, and instead submitted affidavits, without support, that summarily set forth the hours worked. Even after the district court provided Messing with an opportunity to submit a further reply brief, he still did not augment his evidence. Instead, “Messing claimed that he was in possession of ‘extensive time records,’ but would only provide them if Provident provided evidence of its own,” which was unacceptable because Provident was under no obligation to do so. The Sixth Circuit further ruled that Messing’s voluntary reduction of his requested fees did not cure the problem because the absence of information still prevented Provident and the district court from evaluating the reasonableness of his request. As a result, even though the district court erred in ruling that Messing was ineligible for fees, the Sixth Circuit nevertheless upheld the district court’s decision not to award them. Judge Rogers penned a short concurrence in which he explained that he agreed with the second part of the decision that Messing had not carried his burden of proving his fees, but did not join the first part of the decision regarding the King test for two reasons. One, “it is rarely advisable for us to rule on issues that do not affect whether to affirm or reverse,” and two, “it does not appear that the district court abused its discretion with respect to the weighing of the relevant five factors.” Judge Rogers felt that “the district court applied the correct legal test, and its opinion does not appear to have made any clearly erroneous factual determinations.” Thus, “it is very hard to conclude that the district court abused its discretion in weighing those factors, in light of the district court’s thoughtful and extensive analysis.”

Eighth Circuit

Williams v. Equitable Fin. Life Ins. Co. of Am., No. 23-CV-1044 (PJS/ECW), 2024 WL 3949332 (D. Minn. Aug. 26, 2024) (Judge Patrick J. Schiltz). Plaintiff Ray Williams filed this action contending that defendant Equitable wrongfully denied his claim for ERISA-governed long-term disability benefits. The district court agreed with him in part, and remanded the case to Equitable “with instructions to reopen the administrative record and reconsider Williams’s claim… The primary purpose of the remand was to afford Williams an opportunity to respond to two peer reviews of his medical records that he claims not to have received during the administrative proceedings.” Williams then moved for attorney’s fees, but the court denied his motion in this order. The court emphasized that it had “made no ruling (or even comment) on the merits of Williams’s disability claim,” and “was not confident that Williams’s contention was true, but decided to give Williams the benefit of the doubt on a ‘close’ issue.” Thus, the court stated, “It is difficult to imagine a more ‘purely procedural victory,’” which under Supreme Court guidance was insufficient to award fees. The court further ruled that even if the remand did constitute “some success on the merits,” it would still exercise its discretion to deny fees because the decision benefited Williams alone, did not resolve an important legal question, and it appeared that the procedural hiccup in the case was “a clerical error,” which meant “there is no reason to believe that the administrator behaved badly in this case.” Furthermore, plaintiff’s evidence of his incurred fees was inadequate and the court doubted that plaintiff had “incurred over $24,000 in attorney’s fees in arguing that he should have been given a chance to respond to two peer reviews.” Thus, the court denied Williams’ fee motion in its entirety.

Ninth Circuit

W.H. v. Allegiance Ben. Plan Mgmt. Inc., No. CV 22-166-M-DWM, 2024 WL 3965931 (D. Mont. Aug. 27, 2024) (Judge Donald W. Malloy). In June we reported that the court in this matter granted summary judgment to defendants on plaintiffs’ claims under ERISA and the Mental Health Parity and Addiction Equity Act arising from defendants’ denial of benefits relating to plaintiff Z.H.’s treatment at three inpatient mental health facilities. The court did, however, rule in plaintiffs’ favor on their statutory penalties claim, finding that defendants failed to produce a complete copy of the medical necessity criteria and documents used to identify nonquantitative treatment limitations under the Parity Act, even though plaintiffs requested them in writing. Plaintiffs subsequently filed a motion for attorney’s fees, requesting $56,274 in fees and $664 in costs. Defendants did not challenge the costs, which were awarded in full. As for the fees, the court ruled that plaintiffs had achieved “some success on the merits” and satisfied the Ninth Circuit’s five-factor Hummell test. However, the court did not award the full fees requested. Although plaintiffs supported their request with sufficient evidence supporting the number of hours expended and appropriate rates, they only obtained partial success, and thus “a reduction is warranted.” Defendants suggested that plaintiffs’ fees be capped at $6,710.73, using a “proportional mathematical equation” which counted the number of pages in the briefing addressed to each issue. The court ruled that this was “inappropriate” because defendants’ “methodology and resultant fee reduction of 84.5 percent does not accurately reflect the briefing process and may create perverse incentives.” Instead, the court ruled that because plaintiffs prevailed on one of their three claims, “reducing the lodestar figure by two-thirds is reasonable.” The court thus awarded $18,758 in fees.

Breach of Fiduciary Duty

First Circuit

Somers v. Cape Cod Healthcare, Inc., No. 1:23-cv-12946-MJJ, 2024 WL 4008527 (D. Mass. Aug. 30, 2024) (Judge Myong J. Joun). Plaintiffs Cassie Somers and Jolia Georges filed this putative class action contending that their former employer, defendant Cape Cod Healthcare, breached its fiduciary duty in administering the company’s 403(b) employee retirement plan. Defendants filed a motion to dismiss, arguing that plaintiffs lacked standing and their claims lacked merit. On standing, defendants contended that plaintiffs did not allege that they invested in any of the challenged funds, but the court ruled that “[i]t is well-established that for the purpose of constitutional standing, a plaintiff need not have invested in each fund at issue, but must merely plead an injury implicating defendants’ fund management practices.” Plaintiffs had done so by alleging that defendants’ breaches led to “millions of dollars of losses.” On the merits, defendants argued that plaintiffs “fail to allege the Plan’s actual recordkeeping fees, fail to compare the Plan’s fees to any meaningful benchmark, and merely state conclusory allegations that Defendants failed to conduct RFPs at reasonable periods.” However, the court stated that these arguments “miss the mark” because ruling in defendants’ favor would require favoring their calculation formulas, which was not allowed on a motion to dismiss. Furthermore, the court found that plaintiffs’ allegations regarding comparison plans were sufficient to survive dismissal. As for the challenged funds, the court again ruled that it “will not delve into disputes regarding the appropriateness of benchmarks at this stage.” Plaintiffs alleged that defendants “do not appear to have substituted any of the most significant options in the Plan during the Class Period, and cite several allegedly superior alternative options that were available on the market,” which was good enough to get past the pleadings. The court allowed plaintiffs’ failure to monitor claim to proceed for the same reasons. As a result, the court denied defendants’ motion to dismiss in its entirety.

Waldner v. Natixis Investment Managers, L.P., No. 21-CV-10273-LTS, 2024 WL 4002674 (D. Mass. Aug. 21, 2024) (Magistrate Judge Paul G. Levenson). Plaintiff Brian Waldner brought this putative class action contending that his former employer, defendant Natixis, and its retirement committee breached their fiduciary duties under ERISA to Natixis’ 401(k) plan by improperly favoring “mutual funds and other investment products that were offered by Natixis, or by money managers with current or historical ties to Natixis, over more suitable products from Natixis’ competitors.” Defendants filed two motions in limine to exclude plaintiff’s experts and a motion for summary judgment. Defendants contended that summary judgment was appropriate because the plan maintained an investment policy statement, held regular meetings to discuss investments, sought independent advice, engaged external counsel, and offered both proprietary and non-proprietary funds which were all monitored and sometimes removed. However, the magistrate judge found there were genuine factual disputes regarding whether defendants breached their duties. Specifically, plaintiffs pointed to evidence showing an “inverted” process whereby defendants evaluated whether Natixis funds were suitable for the plan, rather than starting with the plan’s goals and seeing if Natixis funds qualified for inclusion. Plaintiff’s expert also opined that some of the products “should not have been on the menu because there were better, competing products that would have filled the same niche,” and other products “should not have been on the menu because there was no good reason to include any product of that type.” In short, plaintiffs produced evidence suggesting that “the Committee was biased toward proprietary products and thus failed to adopt and implement an appropriate strategy to build and maintain a well-balanced Plan menu.” As a result, the magistrate judge largely recommended that the court deny defendants’ summary judgment motion, with the exception of two funds which the magistrate found passed plaintiff’s challenges because there was no evidence that they were “imprudently or disloyally included in the Plan menu.” The magistrate also recommended that defendants’ motion to strike plaintiff’s experts be denied because such arguments were premature.

Fourth Circuit

Trauernicht v. Genworth Financial, Inc., No. 3:22-CV-532, 2024 WL 4000258 (E.D. Va. Aug. 29, 2024); Trauernicht v. Genworth Financial, Inc., No. 3:22-CV-532, 2024 WL 3996019 (E.D. Va. Aug. 29, 2024) (Judge Robert E. Payne). As we reported, last month the court certified a class in this case alleging breach of fiduciary duty by Genworth Financial, Inc. in its supervision of its Retirement and Savings Plan (although the court limited the class to plan participants who invested in BlackRock LifePath Index Funds). In these two orders, the court evaluated two more motions: one by plaintiffs to exclude Genworth’s two experts, and one by Genworth for summary judgment. The court ruled that both of Genworth’s experts had the requisite qualifications to assist the court and that plaintiffs’ objections were primarily directed at the weight and not the admissibility of their testimony. Thus, the court denied plaintiffs’ motion. As for Genworth’s summary judgment motion, Genworth raised arguments regarding loss causation and the statute of limitations. Genworth argued that the BlackRock funds were objectively prudent investments because leading market analysts viewed them favorably, numerous other funds invested in them, and its assets increased during the class period. Plaintiffs responded that this information was not dispositive because the court’s inquiry was context-specific regarding Genworth’s particular plan, not an assessment of the funds in general. The court declined to rule on who was correct, stating that any decision would require weighing the evidence, which was not permitted on summary judgment. The court also rejected Genworth’s statute of limitations argument, ruling that “at least part of the alleged failure to monitor occurred within the [six-year] limitations period.” The court noted that the relevant timeframe was not the initial inclusion of the fund in the plan, but the ongoing “failure to monitor a material change in circumstances in an existing fund and respond to it.” As a result, the court denied Genworth’s motion in its entirety and it looks like this case will be proceeding to trial.

Seventh Circuit

Baird v. Steel Dynamics, Inc., No. 1:23-CV-00356-CCB-SLC, 2024 WL 3983741 (N.D. Ind. Aug. 29, 2024) (Judge Cristal C. Brisco). The plaintiffs are three employees who contend that defendant Steel Dynamics, their employer, and various related defendants violated ERISA in administering Steel Dynamics’ retirement benefit plan. They alleged that “a series of target date funds and an international growth fund offered in the Plan…underperformed and that this underperformance reveals Defendants’ deficient fiduciary process in violation of their duty of care under ERISA.” Defendants filed a motion to dismiss for lack of subject matter jurisdiction and failure to state a claim. Defendants’ jurisdiction argument was premised on plaintiffs’ alleged lack of standing, but the court noted that plaintiffs alleged that at least one of them was personally invested in a challenged fund, and all were pursuing plan-wide relief, and thus “the complaint sufficiently alleges standing for their claims to proceed in this Court.” Next, defendants argued that the action should be dismissed because plaintiffs failed to exhaust their administrative remedies. The court found that plaintiffs plausibly alleged that such exhaustion would be futile because the plan’s administrative review process was limited to “claims for benefits,” and thus rejected defendants’ motion on this ground. However, defendants finally found luck with their final argument, regarding breach of fiduciary duty. The court ruled that plaintiffs “have not adequately pleaded persistent and material underperformance necessary for a breach of fiduciary duty claim” because the challenged funds often had rates of return within 5% of the comparison funds identified by plaintiffs, and in fact sometimes overperformed those comparators. As a result, the court granted defendants’ motion to dismiss, and gave plaintiffs leave to file an amended complaint.

Ninth Circuit

Bozzini v. Ferguson Enterprises, LLC, No. 22-cv-05667-AMO, 2024 WL 4008760 (N.D. Cal. Aug. 30, 2024) (Judge Araceli Martínez-Olguín). This is an action for breach of fiduciary duty alleging that defendants breached their fiduciary duty in the administration of defendant Ferguson Enterprises, LLC’s retirement plan. Three defendants filed motions to dismiss, which were all decided in this order. The motion of the first defendant, Ferguson, was granted in part and denied in part. The court ruled that plaintiffs’ allegations that defendants breached their duty of prudence when the plan “held on to underperforming funds, did not opt for lower cost shares, chose actively managed funds instead of passively managed index funds, and declined to invest in better-performing funds…do not, without further factual allegations, give rise to a breach of fiduciary duty claim.” Plaintiffs also alleged that defendants misrepresented material information to them, but “there are no specific factual allegations sufficient to establish a plausible claim for breach of fiduciary duty based on misrepresentation.” Similarly, plaintiffs did not sufficiently allege that there was a failure in defendants’ investment process. As for breach of the duty of loyalty, the court ruled that plaintiffs’ allegations were inadequate because there were no “different facts” to support that claim. The court further ruled that plaintiffs’ allegations regarding failure to monitor, prohibited transactions, failure to provide plan documents, concealment which operated to prevent the statute of repose, and individual fiduciaries were too thinly pleaded. The court also struck plaintiffs’ jury demand because they had no right to a jury. One silver lining for plaintiffs: the court ruled that they had standing, stating that “[e]ach plaintiff alleges to have invested in one or more of the funds at issue. These allegations are sufficient for standing purposes at this stage.” The court thus granted Ferguson’s motion in almost every respect, and gave plaintiffs leave to amend their complaint to address the issues raised by the court. The court also granted the motions of the other two defendants, Prudential and CapFinancial. The court ruled that plaintiffs did not establish that Prudential was a fiduciary, and in any event Prudential could not have breached any duty by adhering to its contract with the plan. Plaintiffs’ allegations against CapFinancial were not supported by specific allegations regarding wrongdoing, and thus its motion was granted as well. As with Ferguson, the court gave plaintiffs leave to amend their allegations against these two defendants, and ordered consolidated briefing for the next round of motions.

Class Actions

Second Circuit

Savage v. Sutherland Global Servs., Inc., No. 6:19-CV-06840 EAW, 2024 WL 3982831 (W.D.N.Y. Aug. 28, 2024) (Judge Elizabeth A. Wolford). This is a putative class action by participants and beneficiaries of the Sutherland Global Services, Inc. 401(k) Plan alleging that Sutherland and related defendants breached their fiduciary duties by failing to minimize the plan’s fees and expenses. Plaintiffs filed an unopposed motion to seal various documents, and a motion for class certification. The court acknowledged that the documents at issue were covered by a protective order, but they were also “judicial documents because they are exhibits related to Plaintiffs’ motion for class certification,” and thus presumptively should be publicly available. As a result, the court denied the motion to seal because the parties did not provide any independent justification for sealing, and allowed them fourteen days to cure their motion. As for the class certification motion, defendants argued that plaintiffs did not have Article III standing to assert their “Excessive Recordkeeper Total Compensation Claim.” The court agreed that plaintiffs did not articulate this claim very well in their complaint, but found that their argument based on incurring an “unreasonable and unnecessary $50 transactional fee” was a sufficient concrete injury-in-fact to support standing. However, such standing did not support prospective relief because none of the plaintiffs were still enrolled in the plan. Defendants next argued that plaintiffs did not have class standing, and the court agreed because “[t]here is nothing in the record before the Court to support the conclusion that the other members of the proposed class also paid the $50 fee that forms the relevant injury.” The court thus denied plaintiffs’ class certification motion on this ground. Finally, defendants argued that plaintiffs did not have class standing because they were no longer participants in the plan. Plaintiffs did not respond to this argument, but the court rejected it anyway, citing case law holding that plaintiffs who have “cashed out” their retirement benefits still have standing to allege that a breach of fiduciary duty reduced the amount of those benefits. However, this was a pyrrhic victory for plaintiffs, who had both of their motions denied by the court.

Sixth Circuit

Hawkins v. Cintas Corp., No. 1:19-CV-1062, 2024 WL 3982210 (S.D. Ohio Aug. 27, 2024) (Judge Jeffery P. Hopkins). This class action alleging breaches in fiduciary duty by the administrators of the Cintas Partners’ Plan has been pending for five years, during which it has been up to the Sixth Circuit and back. Now the parties have reached a proposed global class settlement that creates a $4 million fund. Plaintiffs moved to have the court approve the settlement. The court agreed that class certification was appropriate because the class was numerous (52,027 members), there were common questions of law and fact, the plaintiffs’ theory of the case was “virtually identical to that of every other class member,” and the plaintiffs “fairly and adequately protect[ed] the interests of the class.” The court further found that the prosecution of separate actions would create a risk of inconsistent adjudications and that the class had received adequate notice. As for fairness, the court found that the settlement resulted from arm’s-length negotiations after complex and vigorous litigation, and that “the benefits of settlement outweigh the risks associated with further litigation and the uncertainty that unnamed class plaintiffs might obtain, under a best-case scenario, the full value of their claims if the lawsuit continued and came to a successful resolution on the merits.” Thus, “the Court finds a settlement of 30% to 34% of Plaintiffs’ own calculations is fair and adequate.” The court further found that counsel on both sides were experienced, that there were only three objections to the settlement from class members, which were not meritorious, and that the public interest would be served by a settlement. The court thus certified plaintiffs’ class, appointed their attorneys as class counsel, granted the motion for final approval of class settlement, and denied defendants’ pending motion to dismiss as moot. Plaintiffs’ attorneys’ fees and case contribution awards will be determined in a separate order.

Disability Benefit Claims

Second Circuit

DeCarlo v. Lincoln Life Assur. Co. of Boston, No. 21 CIV. 2627 (PGG) (GWG), __ F. Supp. 3d __, 2024 WL 3977688 (S.D.N.Y. Aug. 29, 2024) (Magistrate Judge Gabriel W. Gorenstein). Michael DeCarlo was an information technology director who stopped working in 2015 due to chronic fatigue syndrome. Defendant Lincoln Life approved DeCarlo’s claims for short-term and long-term disability benefits. DeCarlo returned to part-time work as a project manager in 2019, and in 2020 Lincoln determined that he was no longer disabled and terminated his benefits. This action ensued and the parties filed cross-motions for summary judgment. The court ruled that the abuse of discretion standard should apply because the Lincoln policy insuring the long-term disability plan granted Lincoln discretionary authority to determine benefit eligibility. DeCarlo argued that the de novo standard should apply because Lincoln misinterpreted his vocational evidence, but the court ruled that Lincoln properly considered the report regardless of its conclusions about it, which was insufficient to change the standard of review. Under abuse of discretion review, the court found that DeCarlo did not meet his burden of proving disability. Lincoln had five doctors review DeCarlo’s records, who all agreed that he “did not have any limitations or restrictions that would prevent him from returning to work on a full-time basis,” largely because he “had returned to work as a project manager on a part-time basis, thus providing powerful evidence that he had the cognitive ability to perform work.” Lincoln properly rejected DeCarlo’s evidence because it “provided little or no ‘clinical’ or ‘objective’ medical evidence and relied heavily on DeCarlo’s own subjective reports.” Furthermore, DeCarlo’s supportive records were largely older and thus “stale.” The court also disagreed that Lincoln had “cherry-picked” evidence, and found that Lincoln’s reliance on surveillance was not significant and did not “detract from the fact that it had five recent medical opinions in the record that supported its conclusion and minimal, non-conclusory evidence to the contrary.” Finally, the court denied as moot DeCarlo’s motion to strike a declaration from Lincoln and a “summary of pertinent medical records,” ruling that it did not consider either in making its decision. Thus, the court recommended that Lincoln’s motion for summary judgment be granted, and that DeCarlo’s be denied.

Fourth Circuit

Sanders v. Hartford Life & Accident Ins. Co., No. CV 22-1945-BAH, 2024 WL 3936942 (D. Md. Aug. 26, 2024) (Judge Brendan A. Hurson). Plaintiff Kenneth Sanders contends in this action that defendant Hartford wrongfully terminated his claim for ERISA-governed long-term disability benefits. Hartford approved his claim in 2008 based on a shoulder injury, and the Social Security Administration and Veterans Administration later agreed that Sanders was disabled under their rules as well. However, in 2021 Hartford determined that Sanders was able to return to work and terminated his benefits. Sanders initiated this action and the parties filed cross-motions for summary judgment. Sanders argued that the proper standard of review was de novo because the policy language purporting to grant Hartford discretionary authority to determine claims was illegal under Maryland law, which bans such language in insurance policies “sold, delivered, issued for delivery, or renewed in the State on or after October 1, 2011.” However, the court noted that Hartford’s policy was issued in 2008, before the law went into effect, and there was no evidence that the policy had been renewed. Thus, deferential review was appropriate, although the court applied a “modified” abuse of discretion review because Hartford had a conflict of interest as both payer and decisionmaker. Under this deferential standard, the court upheld Hartford’s decision because it was not unreasonable. The court found that Hartford reasonably relied on its independent physician experts, who had discounted Sanders’ self-reports of pain based on their review of the medical records and surveillance which showed Sanders frequently exercising at the gym and showing a level of functionality “that is almost in direct contradiction to functions suggested in medical reports.” The court acknowledged that surveillance videos can sometimes be misleading, but it found that the video in this case was particularly probative because it contradicted Sanders’ comments to Hartford about his functionality, and “Hartford considered the surveillance video as one piece of evidence in a holistic assessment of Plaintiff’s case.” The court also noted that the Social Security Administration did not have access to the surveillance video, and thus its contrary disability determination was not entitled to significant weight. As a result, the court granted Hartford’s summary judgment motion and denied Sanders’.

Eighth Circuit

Hitz v. Symetra Life Ins. Co., No. 4:22 CV 1374 RWS, 2024 WL 4006048 (E.D. Mo. Aug. 30, 2024) (Judge Rodney W. Sippel). Plaintiff Laura Crowder Hitz alleges in this action that defendant Symetra wrongfully denied her claim for long-term disability benefits. Hitz is a truck driver who began employment on January 31, 2019, qualified for long-term disability coverage 60 days later on April 1, 2019, and contended that her neck and back problems caused a disability beginning on May 8, 2019. Symetra filed a motion for judgment on the record, arguing that Hitz’s claim was barred by the benefit plan’s pre-existing condition limitation. The plan had a “look-back” period of twelve months prior to coverage, and the court agreed with Symetra that the record showed that during that period Hitz was treated for cervical and lumbar spondylosis and chronic neck and back pain. Hitz argued that Symetra “improperly relied on an MRI dated April 2019 in denying her claim and that the MRI was actually taken in June 2019,” which “falsely made it appear that her neck and back issues pre-existed her work injury in May 2019.” However, the court found that “[n]othing in the record supports Hitz’s assertion that Symetra relied on this MRI in its decision to deny her claim.” Thus, under de novo review, the court ruled in Symetra’s favor and granted its motion for judgment.

Howes v. Charter Communications, Inc., No. 4:23 CV 472 JMB, 2024 WL 3949940 (E.D. Mo. Aug. 27, 2024) (Magistrate Judge John M. Bodenhausen). The parties filed cross-motions for summary judgment in this dispute over short-term disability benefits. The court used the deferential arbitrary and capricious standard of review as it was undisputed that the benefit plan gave the claim administrator, Sedgwick Claims Management, discretionary authority to make benefit decisions. Plaintiff Duane Howes suffers from irritable bowel syndrome, and he argued that Sedgwick “failed to consider his frequent, urgent, and unpredictable need to use the bathroom in denying benefits,” which “prevents him from fulfilling the key requirements of his job[.]” However, the court noted that the plan contained a “self-reported symptoms” provision which required Howes to provide “objective evidence” of his disability. The court found that Howes did not satisfy this requirement because “none of Plaintiff’s treating doctors identified any ‘tests, imaging, clinical studies, medical procedures and other physical evidence’ that would support the symptoms Plaintiff indicates he experienced to the degree that he alleges in his declaration or otherwise.” Thus, the court ruled that Sedgwick’s decision was “supported by substantial evidence (or the lack thereof in this case) and that there is no overwhelming contrary evidence that would undermine the reasonableness of the decision.” The court further determined that Howes received a full and fair review because Sedgwick relied on physician reports that considered Howes’ medical records. As a result, the court ruled that defendants’ decision was not “arbitrary or capricious, unreasonable, or unsupported by substantial evidence,” and thus it granted defendants’ summary judgment motion and denied Howes’.

ERISA Preemption

Eighth Circuit

Kellum v. Gilster-Mary Lee Corp. Grp. Health Benefit Plan, No. 23-2765, __ F.4th __, 2024 WL 3930833 (8th Cir. Aug. 26, 2024) (Before Circuit Judges Colloton, Melloy, and Gruender). After a man died from injuries suffered in an automobile accident with an unknown driver, his family sued his automobile insurer seeking to collect the proceeds of his uninsured motorist coverage. Garden variety state law case? Not so fast. The man’s health insurance benefit plan intervened, contending that it should be reimbursed pursuant to the plan’s equitable lien provisions, and removed the case to federal court on the basis of ERISA preemption. The plan successfully moved for summary judgment on its equitable lien, and plaintiffs appealed. The Eighth Circuit reversed in this published decision, determining that the district court did not have jurisdiction over the matter because there was no ERISA preemption. Relying on the first prong of the Supreme Court’s preemption test in Aetna Health Inc. v. Davila (is the plaintiff “the type of party who can bring a claim under § 502(a)(1)(B)”?), the court ruled that plaintiffs’ claims could not have been brought under ERISA because none of the plaintiffs were plan participants or beneficiaries, and thus their claims did not “fall within the scope of ERISA’s civil-enforcement provisions.” The Eighth Circuit thus vacated the judgment and remanded the case “with instructions to return the case to Missouri state court.”

Medical Benefit Claims

Tenth Circuit

K.H. v. Blue Cross & Blue Shield of Ill., No. 2:21-CV-403-HCN-DAO, 2024 WL 3925915 (D. Utah Aug. 23, 2024) (Judge Howard C. Nielson, Jr.). Plaintiff K.H. is a participant in an ERISA-governed medical benefit plan, and S.H. is his child. S.H. received care at two residential treatment facilities in Utah but defendant Blue Cross refused to pay benefits, contending that neither facility met the plan’s criteria for “residential treatment center.” Plaintiffs brought this action and both sides moved for summary judgment. The court ruled that it “can say neither that Blue Cross’s denial of benefits was correct nor that the Plaintiffs are clearly entitled to benefits under the Plan. It thus concludes that a remand is warranted.” Plaintiffs convinced the court that it was irrelevant whether the two facilities met the plan definition of “residential treatment center” because “Blue Cross has not identified any Plan provision that limits coverage for such treatment to care provided by a residential treatment center.” In short, “whether Outback and Monuments meet the Plan’s definition of a ‘Residential Treatment Center’ is immaterial to whether S.H.’s treatment is a covered benefit under the Plan.” However, the court also ruled that plaintiffs had not adequately shown that the treatment S.H. received was covered, because they “have not argued or presented evidence that any of the individuals who treated S.H. were licensed physicians, clinical social workers, or psychologists,” which was required under the plan. As a result, the court denied Blue Cross’ summary judgment motion, granted plaintiffs’ summary judgment motion in part, and remanded to Blue Cross for further consideration.

Pension Benefit Claims

Fourth Circuit

Gasper v. EIDP, Inc., No. 3:23-CV-00512-FDW-SCR, 2024 WL 3974246 (W.D.N.C. Aug. 28, 2024) (Judge Frank D. Whitney). Plaintiff David Gasper sued his employer, E.I. DuPont de Nemours and Company, and other related defendants under ERISA, challenging their decision to reduce the amount of his pension benefit. Gasper’s benefits were reduced because of a 2013 family court domestic relations order resulting from his divorce. The parties filed cross-motions for summary judgment, and defendants filed an additional motion to strike Gasper’s expert witness report. The court addressed the motion to strike first and granted it, ruling that the report was untimely and neither harmless nor substantially justified. The court found that the report went “beyond the permissible bounds of legal testimony” because it impermissibly offered ultimate legal conclusions, and was not in the administrative record and thus could not be considered. On the merits, the court agreed that Gasper’s claim was not time-barred because he had brought it within three years of defendants’ final denial, and ruled that the domestic relations order was in fact a qualified order under ERISA and thus enforceable. The court then reviewed defendants’ decision under deferential review because the plan gave them discretionary authority to interpret the plan. Under this standard, the court granted defendants’ motion and denied Gasper’s. The court ruled that the plan allowed defendants to reduce Gasper’s benefit to cover the costs involved in paying the ex-wife’s portion of the benefits at issue. The court further ruled that defendants were not liable for a statutory penalty for failing to provide plan documents. Gasper conceded that defendants provided him documents, but contended they were not the right ones. The court ruled that because defendants were responsive to Gasper’s requests, and any failure to provide the correct documents did not ultimately prejudice him, statutory penalties “are not warranted.” Finally, the court declined to rule on attorney’s fees and costs and asked the parties to file separate motions on that issue.

Eleventh Circuit

Roche v. TECO Energy, Inc., No. 8:23-CV-1571-CEH-CPT, 2024 WL 3966067 (M.D. Fla. Aug. 28, 2024) (Judge Charlene Edwards Honeywell). This is a putative class action filed by Alejandro Roche in which he contends that his employer, TECO Energy Inc., and its pension plan violated ERISA Sections 102 and 404 by failing to disclose material information in the plan’s summary plan description (SPD). Specifically, Roche argues that the SPD failed to adequately inform him and other TECO employees about how the plan calculated benefits, including the fact that rising interest rates would reduce his benefit. Roche contends that he would have changed his retirement date, and received larger benefits, if he had been fully informed. Defendants filed a motion to dismiss, arguing that ERISA does not impose the disclosure requirements requested by Roche because “an SPD is a mere summary of the Plan’s terms that courts have held is not required to include information on every detail that might affect benefit calculations.” The court agreed with defendants that the SPD was not deficient under Section 102. The court ruled that “neither ERISA nor its implementing regulations expressly require an SPD to disclose the plan’s method of calculation of lump sum benefits or other distributions among the other listed disclosures. The regulations require an SPD to disclose a plan’s method of calculating contributions and periods of service…but they are silent as to a plan’s method of calculating distributions.” Roche may have wanted the SPD to contain more information, which would have allowed him “to do his own calculation so that he could select the retirement month that would lead him to receive the highest lump sum.” However, “not having that information did not result in a loss or reduction of benefits he might otherwise reasonably expect to receive” and thus defendants were not required to include that information in the SPD. For similar reasons, the court agreed with defendants that they did not breach any fiduciary duty to Roche. The court noted that Roche had not alleged that defendants failed to provide information in response to a request, made any misleading statements, or knew that he misunderstood the plan or its benefits. Instead, Roche’s allegations related solely to the allegedly inadequate SPD. “The Court is unconvinced that ERISA imposes a blanket fiduciary duty to include in the SPD information that the Court has already concluded is not required by ERISA’s disclosure provisions.” As a result, the court granted defendants’ motion to dismiss. The Section 102 claim was dismissed with prejudice, but the court allowed Roche to amend his complaint regarding the fiduciary duty claim.

Plan Status

Eleventh Circuit

Taylor v. University Health Servs., Inc., No. CV 124-019, 2024 WL 3988829 (S.D. Ga. Aug. 29, 2024) (Judge J. Randal Hall). The plaintiffs in this action are former employees of defendant University Health Services who alleged they entered into a written contract with UHS providing that when they reached age 65, they would be furnished with a Medicare supplemental insurance policy at no cost. Previously, the court granted a motion to dismiss by UHS and remanded the case, agreeing that plaintiffs did not have standing because they continued to receive benefits and had not yet suffered any actual harm. On remand, plaintiffs amended their allegations, and defendants removed the case to federal court once again. Plaintiffs moved to remand, arguing that UHS’ removal was untimely and the court lacked jurisdiction over their claims. The court rejected both arguments. First, the court ruled that plaintiffs’ new allegations restarted the clock on UHS’s time to remove and thus its removal was timely. As for jurisdiction, the court ruled that ERISA provided it. Plaintiffs contended that their written agreements with UHS that UHS would provide insurance were not governed by ERISA because they did not include these promises in their Department of Labor forms, and because the benefits were to be paid out of the company’s general assets rather than from a separate fund. However, the court found that these facts were not dispositive, and that other factors, including that “a reasonable person can ascertain (1) the intended benefits, (2) the class of intended beneficiaries, (3) the source of financing, and (4) the procedures for receiving benefits,” demonstrated that the arrangement was an ERISA plan. The court also rejected plaintiffs’ argument that the plan was exempt from ERISA because it was a payroll practice, excess benefit plan, or governmental plan. The plan was not a payroll practice because the benefits did not constitute “wages” or another form of “compensation.” It was also not an excess benefit plan because it did not exist “‘solely for the purpose of’ providing benefits in excess of the limitations imposed by 26 U.S.C. § 415.” The plan was not a governmental plan because UHS was not controlled by, and was not an instrumentality of, the Richmond County Hospital Authority, even if it leased its facilities from the Authority. Finally, the court ruled that plaintiffs’ state law claims were completely preempted by ERISA. As a result, the court denied plaintiffs’ motion to remand and gave them 30 days to amend their complaint to allege claims under ERISA.

Pleading Issues & Procedure

Fifth Circuit

Consumer Data Partners, LP v. Agentra LLC, No. 3:23-CV-2110-B, 2024 WL 3997494 (N.D. Tex. Aug. 28, 2024) (Judge Jane J. Boyle). Plaintiff Consumer Data Partners hired defendant Agentra to provide enrollment services for its self-insured group employee health and welfare benefit plan. The relationship soured, however. CDP has now brought this action contending that Agentra and its owner failed to transmit plan participant contributions to CDP’s third-party administrator, overcharged the plan, and violated its agreement with CDP “by delegating its responsibility to collect DPG Plan contributions to…an entity owned by Agentra that regularly transferred funds to Agentra and Agentra’s owner[.]” CDP’s complaint has ten causes of action, three of which are ERISA claims and seven of which are state law claims. Agentra moved to dismiss all of the state law claims and two of the ERISA claims. CDP agreed that its state law claims were preempted by ERISA, and thus the court granted Agentra’s motion to dismiss those claims. As for the ERISA claims, the court denied Agentra’s motion. Agentra argued that CDP could not assert a claim for breach of fiduciary duty under Section 1132(a)(3) because that section only authorizes equitable relief, whereas CDP was seeking legal relief. The court noted that CDP’s complaint requested restitution and disgorgement, and ruled that both were cognizable equitable claims under ERISA. The court agreed with CDP that it was seeking the return of “specific funds” and “specific property,” i.e., plan assets, and thus CDP was not alleging general personal liability, which would be legal relief unavailable under Section 1132(a)(3). The court also rejected Agentra’s argument that CDP engaged in “improper group pleading,” ruling that the complaint contained “sufficient individualized factual allegations to justify the limited use of allegations against all Defendants.” As a result, CDP’s ERISA claims survived and the action will continue.

R.C. v. Louisiana Health Servs. & Indem. Co., No. 23-564-SDD-SDJ, 2024 WL 4009945 (M.D. La. Aug. 30, 2024) (Judge Shelly D. Dick). Plaintiffs R.C. and his stepson C.A. allege that defendant Blue Cross and Blue Shield of Louisiana wrongfully denied their claims for health care benefits arising from C.A.’s residential treatment at two facilities in Utah. Plaintiffs asserted two causes of action against Blue Cross and its agent, New Directions Behavioral Health LLC: one for plan benefits under 29 U.S.C. § 1132(a)(1)(B) and another for violation of the Mental Health Parity and Addiction Act under 29 U.S.C. § 1132(a)(3). Defendants filed a motion to dismiss the second claim, arguing that it was duplicative of the first claim and “fail[ed] to plead separate and discernable injuries.” Defendants argued that the underlying injury and remedy for both of plaintiffs’ claims were the same, i.e., the denial of their claims which led them to demand the payment of plan benefits allegedly due. However, plaintiffs argued that their Parity Act claim was based on different allegations and sought different relief, and thus was not duplicative. After reviewing relevant case law, the court concluded that the cases “read together do not support a blanket rule prohibiting a plaintiff’s ability to plead claims under both Section 502(a)(1)(B) and Section 502(a)(3) simultaneously.” The court ruled that plaintiffs’ second claim was not a “repackaging” of the first claim, was not duplicative, and “alleges an injury distinct from that of the claim for denial of benefits.” The court was also concerned that “adopting a rule that outright prohibits simultaneously pleading Section 502(a)(1)(B) claims and MHPAEA claims under Section 502(a)(3) would ‘effectively negat[e] the Parity Act in every case where the plaintiff also plausibly alleges that they were wrongfully denied benefits.’” As for whether monetary damages provided “adequate relief,” the court ruled that “it is premature at the pleading stage to determine whether the Section 502(a)(1)(B) claim provides adequate relief for Plaintiffs’ alleged injuries. In fact, this determination is not even practically possible at the pleading stage because on the merits, the Court could find that Defendants are liable to Plaintiffs under both, either, or neither of the two causes of action.” The court thus denied defendants’ motion.

Sixth Circuit

Moyer v. Government Emps. Ins. Co., No. 23-4015, __ F.4th __, 2024 WL 3934556 (6th Cir. Aug. 26, 2024) (Before Circuit Judges Boggs, Cook, and Nalbandian). This case revolves around the issue of whether plaintiffs, who are captive insurance agents for defendant GEICO, are independent contractors, or whether they are employees who are entitled to participate in GEICO’s employee benefit plans. When GEICO moved to dismiss the case, the district court sua sponte ordered the parties to file copies of the relevant benefit plans. GEICO provided the court with copies, accompanied by a declaration that the documents produced were “all of the relevant plan documents” and covered the entire time period at issue. The agents protested, contending that it was improper for the district court to review the documents on a motion to dismiss, and identifying features of the documents that raised questions as to whether they were complete and accurate. The agents asked for more time to conduct discovery on the issue. The district court refused this request and granted GEICO’s motion. (Your ERISA Watch covered this ruling in its December 13, 2023 edition.) In this published decision, the Sixth Circuit reversed. The court ruled that the case “involves both authenticity and completeness issues,” and there was “a question” as to whether GEICO had satisfied either in producing its documents. The court noted that the documents had redlines, electronic comments, amendments, handwritten notes, missing pages, and rendering errors, all of which raised “a significant factual question” as to whether they were complete and accurate. As a result, the Sixth Circuit ruled that the district court erred in relying on the documents in granting GEICO’s motion and remanded for the court to consider the other arguments made by GEICO in its motion.

Ninth Circuit

Vernon v. Metropolitan Life Ins. Co., No. 2:23-CV-01829 DJC AC PS, 2024 WL 3917187 (E.D. Cal. Aug. 23, 2024) (Magistrate Judge Allison Claire). Plaintiff Jimmy Lee Vernon is a state prisoner proceeding pro se who contends that defendant MetLife should have paid him benefits from his father’s life insurance plan. The magistrate judge previously ruled that Vernon’s claims were preempted by ERISA and gave him leave to amend his complaint to assert ERISA-related claims. Vernon did so, including both state law and ERISA claims in his new complaint. In this order the magistrate judge recommended that Vernon’s new complaint be dismissed as well. The court ruled that the state law claims were once again preempted by ERISA, for the same reasons as in its previous order. As for the ERISA claims, the court ruled that Vernon could not proceed under (1) Section 1132(a)(2) because he was seeking relief for himself and not for the plan, (2) Section 1132(a)(3) because the remedy he sought was the payout of the life insurance proceeds, which was legal, not equitable, relief, or (3) Section 1111 because that section deals with people who are prohibited from holding certain positions in a benefit plan, which was unrelated to Vernon’s allegations. The magistrate also recommended dismissal of Vernon’s claims against the individual defendants because they were not fiduciaries of the benefit plan. The magistrate concluded by recommending that the case be dismissed without leave to amend because it is “clear that further amendment is futile.”

Provider Claims

Ninth Circuit

Regents of the Univ. of California v. The Chefs’ Warehouse, Inc. Emp. Benefit Plan, No. 2:23-CV-00676-KJM-CKD, 2024 WL 3937161 (E.D. Cal. Aug. 26, 2024) (Judge Kimberly J. Mueller). The University of California Davis Medical Center brought this action alleging that defendant, an employee health plan, violated ERISA by underpaying benefits for a patient’s inpatient cancer surgery. (The patient had assigned her rights to pursue her claim to the hospital.) The hospital’s claims hinged on Public Health Service Act section 2707(b), as added by the Affordable Care Act, which sets an annual maximum out-of-pocket limit for essential health benefits. The plan filed a motion to dismiss, contending that because the hospital was a non-network provider, the cost-sharing limitations imposed by this law did not apply to the patient’s treatment and thus it paid the proper amount. The court agreed with the plan that “[t]he hospital is a non-network provider under both the plain reading of the statute and customary usage of that term” because the hospital was not in the plan’s network of providers and did not have a contract with the plan. The hospital made a “convoluted” argument that the plan did not actually have a network of providers because it did not “use a reasonable method to ensure adequate access to quality providers.” As a result, “if there is no network of providers, there can be no non-network providers.” However, the court rejected this argument, finding that the hospital had not provided sufficient legal support for it, and noting that the plan was self-funded and thus many of the Affordable Care Act’s requirements did not apply to it. Thus, the court granted the plan’s motion, although it stressed that it did not “condone[] the plan’s misleading language, which suggests rather plainly that it will cover 100 percent of the costs after the deductible for the treatments Patient A received.” The court also noted that the plan’s use of reference pricing “may undercut the purpose of the cost sharing provision and expose individual beneficiaries to significant financial liability and hardship.” However, because the plan did not run afoul of the law, the court was required to dismiss the case.

Sunrise Hosp. & Med. Ctr. LLC v. Blue Shield of Cal., No. 2:23-CV-01986-APG-EJY, 2024 WL 3938489 (D. Nev. Aug. 23, 2024) (Judge Andrew P. Gordon). Plaintiffs, a medical group, sued Blue Cross of California, Anthem Blue Cross Life and Health Insurance Company, and Keenan & Associates, Inc., contending that they failed to reimburse plaintiffs for treatment of four patients covered by defendants. Plaintiffs brought claims for ERISA violations, breach of contract, and unjust enrichment. Defendants moved to dismiss, arguing that plaintiffs lacked standing, their state law claims were preempted, two of the patients’ claims were time-barred, and plaintiffs failed to state a claim. At the outset, the court agreed with plaintiffs that it should not consider plan documents attached by defendants to their motion to dismiss because it was not clear how they related to plaintiffs’ claims. This decision was crucial to the rest of the order, as it deprived defendants of support for several of their defenses. The court went on to rule that (1) it had jurisdiction over plaintiffs’ ERISA claims because of ERISA’s nationwide service of process rules, (2) it had pendent jurisdiction over the state law claims, (3) plaintiffs had standing because they alleged that the patients had validly assigned their rights to plaintiffs and that defendants had waived any arguments regarding the plans’ anti-assignment provisions, (4) it was premature to dismiss plaintiffs’ state law claims as preempted because “further factual development is necessary to determine whether the patients’ health insurance plans are governed by ERISA,” (5) plaintiffs had plausibly alleged their claims because they had “pleaded that they provided medically necessary covered service to the patients, which the defendants did not reimburse,” (6) venue was proper in Nevada because plaintiffs were located there and the treatment at issue was provided there, and (7) it was not clear from the face of the complaint that plaintiffs’ claims under ERISA and for breach of contract were untimely. Other issues, such as whether one patient’s claims arose under the California Public Employees’ Retirement System, or whether another patient’s claims were subject to arbitration, were deferred. Defendants scored one minor victory, as the court ruled that an unjust enrichment claim for one of the patients should be dismissed under the controlling Nevada statute of limitations. Otherwise, however, defendants’ motion to dismiss was denied.

THC-Orange County, LLC v. Regence Blueshield of Idaho, Inc., No. 1:24-cv-00154-BLW, 2024 WL 4008574 (D. Idaho Aug. 30, 2024) (Judge B. Lynn Winmill). Plaintiff Kindred Hospital is a long-term acute care hospital in California that provided extended care to a participant in an employee medical benefit plan insured by defendant Blue Shield. Blue Shield paid Kindred $554,143 for the treatment it provided, which was “a significant underpayment.” Kindred brought this action alleging violations of California law, and defendants filed a motion to dismiss, arguing that Kindred’s claims were preempted by ERISA. The court took judicial notice of the benefit plan at issue and granted defendants’ motion. The court ruled that Kindred’s claims had a “connection with” and a “reference to” an ERISA plan because the existence of the plan was crucial to Kindred’s claims, defendants’ obligation to pay was based on the plan, and the conduct underlying Kindred’s claims occurred during the administration of the plan. Kindred argued that the obligation at issue arose from its provider agreement with Blue Shield, but the court rejected this argument, ruling that “each of these claims seek to recover benefits due under the patient’s ERISA plan. Accordingly, Counts One through Six are preempted by ERISA and are dismissed with prejudice.”

Retaliation Claims

Eleventh Circuit

Jones v. Alfa Mut. Ins. Co., No. 2:21-CV-659-AMM, 2024 WL 3952573 (N.D. Ala. Aug. 26, 2024) (Judge Anna M. Manasco). Plaintiffs Tina Jones and Bobbie Simmons were assistant underwriters for defendant Alfa Mutual Insurance Company who were terminated in 2019 as part of a reduction in force in which their department was eliminated. At the time, they were passed over for other positions within the company. Plaintiffs brought this action alleging claims of discrimination and retaliation under the Age Discrimination in Employment Act (ADEA), and claims for interference with their rights under Section 510 of ERISA. Alfa filed a motion for summary judgment on all claims. The court granted the motion on the ADEA claims because, although plaintiffs had created a prima facie case of age discrimination, Alfa provided a legitimate, non-discriminatory reason for their termination, i.e., the reduction in force. The burden shifted to plaintiffs to show that this reason was pretextual, but the court ruled that they did not meet this burden because the evidence showed that they were not considered for other positions in the company because their performance rank was below those of others who did receive transfers. For similar reasons, the court granted Alfa’s motion as to plaintiffs’ ERISA claims, ruling that plaintiffs had insufficient evidence to show that their pensions were a factor in their termination. The court found that plaintiffs’ arguments did not address pretext and were unsupported by evidence showing that the persons involved in their terminations had access to their pension information or used it in making decisions. As a result, the court granted Alfa’s summary judgment motion in its entirety.

It was a busy ERISA week in the federal courts, especially at the appellate level where the circuit courts issued no fewer than five decisions, three of them published. It was too difficult to focus on just one case, so we’ve decided to let you choose your own adventure among the notable decisions below:

  • The Sixth Circuit joined the brigade of circuit courts applying the “effective vindication” doctrine to invalidate arbitration clauses in benefit plans (Parker v. Tenneco)
  • A district court let the Department of Labor pursue Blue Cross Blue Shield of Minnesota for allegedly passing its tax obligations off onto the health plans it administered (Su v. BCBSM)
  • The Ninth Circuit ruled that a district court has to take another shot at figuring out whether Northrop Grumman mishandled its pension plan transition after acquiring TRW (Baleja v. Northrop Grumman)
  • A district court concluded after a week-long bench trial that Prime Healthcare breached no duties in overseeing its retirement plan (In re Prime Healthcare)
  • A district court ruled that a medically compromised physician was disabled because a return to work during the height of COVID would have put her health at risk (Downs v. Unum)
  • A district court determined that a plan participant was a fiduciary in ordering him to return overpaid disability benefits (P&G v. Calloway)
  • A district court ruled that a wrongful death claim against a health plan administrator was preempted by ERISA (Cannon v. Blue Cross)
  • And last, but certainly not least, the Sixth Circuit helpfully informed us that you can’t kill your mother and expect to get her life insurance benefits, even if you’re the designated beneficiary (Standard v. Guy)

Of course, these were not the only decisions this week, so if you don’t like any of the above, read on for more!

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

Arbitration

Sixth Circuit

Parker v. Tenneco, Inc., No. 23-1857, __ F. 4th __, 2024 WL 3873409 (6th Cir. Aug. 20, 2024) (Before Circuit Judges Gibbons, McKeague, and Stranch). In this decision the Sixth Circuit joined four sister circuits (the Second, Third, Seventh, and Tenth) in applying the effective vindication doctrine to strike down an arbitration provision in an employee retirement benefit plan which restricts the ability of plan participants to bring representative plan-wide ERISA actions and limits monetary relief to losses to individual plan accounts. The Sixth Circuit found the decisions of the other circuit courts on the same issue instructive and applied their logic to examine the arbitration provision in the Tenneco Inc. 401(k) Plan. The Sixth Circuit ultimately found the plan’s arbitration provision unenforceable under the effective vindication doctrine as it expressly eliminates the ability to proceed in a representative capacity on behalf of the plan or to obtain relief for plan-wide losses. The Sixth Circuit agreed with its sister courts that these “are substantive statutory remedies provided by ERISA.” Contrary to defendants’ assertion, the Sixth Circuit read the Supreme Court’s decision in LaRue as broadening rather than limiting the relief available under Section 502(a)(2). The Sixth Circuit understood LaRue to hold that a derivative fiduciary breach claim may be brought on behalf of a plan “even if the ultimate relief may be individualized,” and declined to interpret LaRue to bar plan-wide recovery. Moreover, the Sixth Circuit noted that it had already considered the question of whether claims under Section 502(a)(2) belong to individuals or to the plan as a whole in an earlier decision, Hawkins v. Cintas Corp, 32 F.4th 625 (6th Cir. 2022), and concluded there that although Section 502(a)(2) claims are brought by individual plan participants the claim really belongs to the plan and such suits are “brought in a representative capacity on behalf of the plan as a whole.” Here, the court determined that the plaintiffs’ action against the fiduciaries of the Tenneco Plan similarly alleges plan-wide harms of plan mismanagement through the selection and retention of high-cost share classes, and through the failure to reduce plan expenses. Additionally, the Sixth Circuit highlighted that the monetary remedies plaintiffs request will flow to the plan not to the individual participants, although individual participants will naturally benefit from any monetary relief obtained. The appeals court also rejected defendants’ argument that the arbitration provision at issue was distinguishable from others barred under the effective vindication doctrine because it provides for certain injunctive relief. “That the individual arbitration provision here still allows plan-wide injunctive relief has no bearing on the fact that it eliminates statutorily created plan-wide monetary relief.” For these reasons, the Sixth Circuit determined that the arbitration provision is an unenforceable prospective waiver of ERISA statutory rights since it eliminates the ability to proceed in a representative capacity on behalf of the plan and the ability to obtain relief for losses to the plan. And because the arbitration provision’s language foreclosing the ability to bring group, class, or representative arbitrations and limiting relief to individual accounts was non-severable, the Sixth Circuit concluded that the arbitration provision was invalid and unenforceable. Thus, the Sixth Circuit affirmed the judgment of the district court denying defendants’ motion to compel arbitration in the plan participants’ Section 502(a)(2) and Section 409(a) ERISA action. However, the decision ended with an important final announcement: “Nothing in this opinion should be construed as implying that §§ 409(a) and 502(a)(2) are incompatible with the arbitral forum. The problem here lies with this individual arbitration provision, which is non-severable, limiting statutory remedies that bar effective vindication of statutory rights.” Thus, the Sixth Circuit left the door open to enforcing other arbitration provisions in ERISA plans which do not suffer from the same problems.

Attorneys’ Fees

Tenth Circuit

L.L. v. Anthem Blue Cross Life & Health Ins. Co., No. 2:22-CV-00208-DAK, 2024 WL 3899380 (D. Utah Aug. 21, 2024) (Judge Dale A. Kimball). Plaintiffs moved for an award of attorneys’ fees and costs under ERISA Section 502(g)(1) after the court entered summary judgment in their favor and remanded the case to Anthem Blue Cross to review the family’s healthcare claims again. In that decision, the court concluded that defendants abused their discretion by failing to meaningfully engage with plaintiffs’ claim and appeals, as required by ERISA. Plaintiffs were represented in this matter by attorney Brian King and two associate attorneys in Mr. King’s office, Mr. Newton and Mr. Somers. As an initial matter, the court clarified that there is no blanket rule in the Tenth Circuit that fee awards are premature “whenever a district court decides to remand a claim to the plan administrator rather than ordering benefits directly.” Rather, to determine whether attorneys’ fees were appropriate, the court applied the five-factor Gordon v. U.S. Steel Corp. test. It concluded that all five factors supported a fee award because: (1) defendants were culpable of irresponsibly engaging with the evidence plaintiffs submitted; (2) Anthem Blue Cross can easily satisfy a fee award; (3) a fee award would serve a desirable deterrent for plan administrators and would encourage them to fully evaluate healthcare claims going forward; (4) this case has clarified what is expected in the claims handling of healthcare claims in order for claims administrators to fully engage in a meaningful dialogue; and (5) plaintiffs had success on the merits. After establishing that a fee award is appropriate here, the decision segued to its scrutiny of the requested fee amount. First, the court looked at the requested hourly rates. Mr. King, an ERISA expert who has been practicing for 38 years, charges an hourly rate of $600. His associates, Mr. Newton and Mr. Somers, charge $250 and $350 respectively. The court found all of these rates reasonable. As for the time requests, the court further concluded that 46.7 hours for Mr. King, 10.4 hours for Mr. Newton, and 72.6 hours for Mr. Somers were all appropriate and reasonable. Accordingly, the court awarded plaintiffs their full requested amount of $49,810. Plaintiffs’ costs, consisting of the $400 filing fee, were also determined to be recoverable.

Breach of Fiduciary Duty

First Circuit

Kovanda v. Heitman, LLC, No. 23-CV-12139-NMG, 2024 WL 3888762 (D. Mass. Aug. 12, 2024) (Magistrate Judge Donald L. Cabell). In 2002, decedent Karen Ann Kovanda named her parents as the primary beneficiaries of her retirement account in the event of her death, and her sister, Heidi Hallisey, as a secondary beneficiary. Years later, in 2017, Ms. Kovanda retired from her job at Heitman LLC. Later that same year, Heitman changed the plan’s recordkeeper from Merrill Lynch to John Hancock Retirement Plan Services. There was seemingly a mix-up at this time, and Heitman failed to provide the 2002 beneficiary designation to John Hancock. This led to John Hancock misrepresenting to Ms. Kovanda that she had not designated a beneficiary. As a result, when Ms. Kovanda was estate planning in 2020, she informed her attorney that the retirement plan had no designation so her benefits would pass to her estate or trust. Ms. Kovanda prepared an estate plan that did not involve her sister Heidi (nor her parents who were already deceased at this point). Instead, Ms. Kovanda selected three other siblings that she wanted her assets to pass to, specifying to her attorney that she did not intend for her assets to pass to her other three siblings. Ms. Kovanda died shortly thereafter. In the end, her retirement plan benefits went to Heidi, pursuant to the 2002 beneficiary designation. The three chosen siblings of Ms. Kovanda’s estate sued their sister and Heitman in this action challenging the distribution of benefits. The plaintiffs assert five claims: (1) a claim for declaratory judgment; (2) a claim for benefits under ERISA Section 502(a)(1)(B); (3) a claim of breach of fiduciary duty under Section 502(a)(3); (4) a claim for violation of the terms of the ERISA plan under Section 502(a)(3); and (5) unjust enrichment pursuant to state common law. The court concluded that the payment of benefits to Heidi was proper under the terms of the plan and therefore dismissed counts 2 and 4. However, drawing all instances in plaintiffs’ favor, the court determined that they asserted a colorable, plausible claim for breach of fiduciary duty, and a derivative claim for declaratory judgment. The court therefore denied the motion to dismiss with regard to counts 1 and 3, and stated that limited discovery into the alleged breach of fiduciary duty was appropriate. Finally, the court declined to exercise jurisdiction over the unjust enrichment claim asserted against the sister. This claim too was therefore dismissed.

Sixth Circuit

The P&G Health & Longterm Disability Plan v. Calloway, No. 1:23-cv-372, 2024 WL 3861051 (S.D. Ohio Aug. 19, 2024) (Judge Matthew W. McFarland). The administrator of Procter & Gamble’s long-term disability plan brought this action seeking overpayments from a disabled plan participant, defendant Lonorris Calloway, after he received a lump-sum payment of disability benefits from the Social Security Administration. Plaintiff asserted six causes of action against Mr. Calloway: (1) ERISA breach of fiduciary duty; (2) breach of contract; (3) unjust enrichment; (4) constructive trust; (5) conversion; and (6) enforcement of disability plan terms to recover the overpayment. This case apparently was not brought as a subrogation action, despite being similarly fashioned. Mr. Calloway has not appeared in this litigation and his time to respond to the complaint has passed. Accordingly, plaintiff moved for default judgment. The court first tackled plaintiff’s breach of fiduciary duty claim. The court found that Mr. Calloway, a plan participant, “is a fiduciary of the Plan.” Moreover, the court held that the overpayments from the plan “are Plan assets under ERISA,” and Mr. Calloway’s “retention of the Plan’s assets imposes fiduciary duties onto” him. By failing to repay plaintiff any overpayment he received from the plan resulting from the Social Security Administration’s payments, the court found that Mr. Calloway violated his fiduciary duty to the plan. Thus, the court entered default judgment in favor of the plan administrator on its ERISA fiduciary breach claim. Nevertheless, the court denied the motion for default judgment on the remaining five causes of action. To the extent they were asserted under state law, the court found the claims preempted by ERISA, and to the extent they were asserted under federal law the court found them unnecessary in light of its ruling on the fiduciary breach claim. Finally, the court awarded plaintiff the full requested damages of $9,978.57, and costs of $436.91. The court was satisfied that the damages were correct as the plan administrator provided documentation proving Mr. Calloway’s receipt of Social Security benefits and the extent and duration of the plan’s overpayment. As for the costs, consisting of filing fees and postage, the court found them reasonable and recoverable. Accordingly, the Procter & Gamble disability plan administrator was successful in this fiduciary breach action brought against a plan participant.

Seventh Circuit

Acosta v. Board of Trs. of UNITED HERE Health, No. 22 C 1458, 2024 WL 3888862 (N.D. Ill. Aug. 21, 2024) (Judge Rebecca R. Pallmeyer). Plaintiffs are participants in three units of a national multiemployer health plan, UNITE HERE Health. They have sued the fiduciaries of the plan for breaches of fiduciary duties for unfair allocation of administrative expenses and incurring excessive administrative expenses. These two causes of action have already survived a pleading challenge, when the former judge assigned to this matter denied in part defendants’ motion to dismiss this action. That ruling, covered in our April 12, 2023 newsletter, concluded that plaintiffs sufficiently stated their fiduciary breach claims asserted under ERISA Sections 502(a)(2), (a)(3), and 409 in connection with the administrative expenses, as they “showed that similarly situated funds accrued significantly lower administrative costs,” and provided evidence that defendants treated their units unfavorably. In that same decision, the court granted defendants’ motion to dismiss the claim for violation of the exclusive purpose rule, as well as the prohibited transaction claim. Plaintiffs have since amended their complaint to add an additional named plaintiff and excise the two dismissed causes of action. They made no substantive changes to the fiduciary breach claims. Defendants filed a motion to dismiss the excessive fee fiduciary breach claim under Rule 12(b)(6). The court denied their motion. It concluded that plaintiffs did more than enough “to sustain this court’s earlier ruling,” and saw no reason to disturb it. The court rejected the level of specificity defendants demanded in determining whether plaintiffs had pled proper comparisons. “Nothing in either Albert or Hughes suggests that Plaintiffs must identify every possible service provided by peer plans, or describe their administrative structure in exhaustive detail, to allow for a meaningful comparison. It would be unduly burdensome to require the Complaint to itemize the full range of medical, dental, vision, and other benefits provided across not only UHH’s various plan units, but those of 29 other comparator plans.” Instead, the court expressed that plaintiffs only need to identify why their offered comparison was possible, and concluded that they did so by pleading “that one of the major drivers (if not the only driver) of a health plan’s operating costs is whether it is fully or self-insured. And if the story Plaintiffs tell is true, the costs they incur for fully insured benefits exceed not only those of other fully-insured plans, but even the supposedly more expensive self-insured plans.” Thus, defendants’ second attempt to dismiss the fee claim was once again denied.

Eighth Circuit

Su v. BCBSM, Inc., No. CV 24-99 (JRT/TNL), 2024 WL 3904715 (D. Minn. Aug. 22, 2024) (Judge John R. Tunheim). Acting Secretary of Labor Julie A. Su brought this action against BCBSM, Inc., a third-party administrator for about 370 self-funded health insurance benefit plans in Minnesota. The dispute arises from Minnesota tax law, which imposes a “MNCare Tax” on medical care providers’ gross revenues from patient services. BCBSM “agreed to reimburse providers in its network for their MNCare Tax liabilities and passed along those reimbursement expenses to the plans.” However, the Department of Labor contends that the plans “did not agree to the tax reimbursements, that reimbursement was a gratuitous offer by BCBSM, and that BCBSM thus engaged in prohibited transactions and violated its fiduciary duties by using plan assets to pay the providers’ MNCare Taxes without the plans’ knowledge or consent.” The DOL argued that in doing so BCBSM “recoup[ed] nearly $67 million from the plans for its own MNCare reimbursement liabilities between 2016 and 2020.” BCBSM filed a motion to dismiss, contending that the DOL lacked standing and failed to state a claim. The court opined that “many issues in this case present close calls,” but ultimately it rejected both of BCBSM’s arguments and denied the motion. On standing, BCBSM argued that the alleged harm was speculative because the rates between it and the providers were all negotiated and thus it mattered little how those rates were itemized. In short, even if the tax was not included, the paid rates likely would have been the same and thus the plans suffered no harm. The court conceded that this might be true, but refused to arrive at that conclusion on a motion to dismiss: “The Court cannot be sure that BCBSM’s hypothetical negotiations would have worked so neatly in practice, or that the plans would have no objections. The Court will thus allow the parties a chance to develop the record before ruling on this fact-bound issue.” On the merits, the court agreed with the DOL that BCBSM was acting as a functional fiduciary because BCBSM “exercised authority or control over plan assets” by “unilaterally encumbering” those assets. As for breach, the court ruled that “whether BCBSM fairly negotiated to pay the MNCare Tax, and thus whether it was authorized to use plan funds to do so, presents a question of fact that cannot be resolved on a motion to dismiss.” The court found it “at least plausible that the taxes should not have been included in the negotiated rate as understood by the parties.” Finally, the court ruled that the DOL had adequately alleged that BCBSM’s use of plan assets to cover its own liabilities constituted a prohibited transaction under ERISA, and that it was premature to address BCBSM’s argument that no remedies were available. As a result, the court denied BCBSM’s motion to dismiss.

Ninth Circuit

In re: Prime Healthcare ERISA Litig., No. 8:20-CV-1529-JLS-JDE, 2024 WL 3903232 (C.D. Cal. Aug. 22, 2024) (Judge Josephine L. Staton). This lengthy order constitutes the findings of fact and conclusions of law from a week-long bench trial that took place in April. The action was brought by a class of participants and beneficiaries of Prime Healthcare Services, Inc.’s 401(k) retirement benefit plan against Prime and its benefit committee. Plaintiffs alleged that the committee failed to prudently monitor the investments made by the plan, failed to prudently monitor the plan’s recordkeeping fees, and failed to prudently monitor the plan’s share classes. Plaintiffs also alleged that Prime failed to prudently monitor the committee. The court spoiled the conclusion in the first paragraph: “The Court concludes that Defendants used a prudent process to select, monitor, and retain investments; to monitor the Plan’s recordkeeping and administration fees; and to monitor the share classes of the investments in the Plan. Therefore, the Court rules against Plaintiffs and in favor of Defendants on all of Plaintiffs’ claims.” The court began by criticizing plaintiffs’ two expert witnesses. The first, a process expert, offered generic, conclusory opinions, inexplicably discarded countervailing evidence, offered internally inconsistent opinions, and relied on limited documents, and thus the court gave her testimony “little to no weight.” The second, a recordkeeping fee expert, had “minimal relevant industry experience,” offered “conclusory, ipse dixit” testimony, misunderstood ERISA’s requirements, and offered impermissible legal conclusions. On the other hand, defendants’ expert testimony was “highly probative” because of his “broad experience in the retirement-benefits industry, his specific experience specific working with clients similar to Prime, and his reliance on formal research into industry practice[.]” The court found that Prime’s committee met regularly, was actively engaged in managing the plan, and its members had relevant experience. The court also found that the committee “selected, monitored, and retained the Plan’s investments pursuant to a prudent fiduciary-governance structure.” There was no evidence that the plan’s investment policy statement (IPS) or the committee’s training were substandard, or that its lack of a written charter was relevant to plaintiffs’ claims. The committee also “closely monitored” the funds at issue, even when they were performing well, and complied with the IPS. The court further rejected plaintiffs’ argument that the committee failed to respond to “red flags” in a Reuters report, finding that the committee knew about the report and concluding that plaintiffs “are simply taking issue with the Committee not more quickly moving to better-performing alternatives – without showing any underlying deficiencies in the investment-monitoring process.” As for the recordkeeping fees, the court found that the committee regularly met to discuss fees, and commissioned three vendor fee benchmarks during the class period, and thus it “used a prudent process” to monitor those fees. On the share classes issue, the court found that the committee “routinely discussed” this issue and worked with fund managers to investigate lower-cost options. As a result, the committee “made reasonable, informed choices with respect to those share classes.” Because the court found that the committee had not breached any of its fiduciary duties, plaintiffs’ derivative claim that Prime failed to prudently monitor the committee also failed. Finally, the court rejected plaintiffs’ argument that defendants breached their fiduciary duties by not distributing funds in the plan’s expense-budget account to participants. The court ruled that this argument was not present in plaintiffs’ complaint or the pretrial order, which the court found consistent with plaintiffs’ “pattern of sandbagging in this case.” In any event, the court ruled that the argument had no merit because the plan contained language explicitly allowing defendants to use the expense-budget funds to pay plan expenses. As a result, Prime and its committee prevailed on all counts.

Class Actions

First Circuit

Parmenter v. The Prudential Ins. Co. of Am., No. CV 22-10079-RGS, 2024 WL 3903076 (D. Mass. Aug. 22, 2024) (Judge Richard G. Stearns). Plaintiff Barbara Parmenter, an employee of Tufts University, sued Tufts and Prudential Insurance Company in this putative class action alleging that they improperly raised the premiums on her ERISA-governed long-term care coverage. Specifically, she argued that the benefit plan stated that any premium increases would be “subject to” approval by the Massachusetts Department of Insurance, and that Prudential never obtained such approval before raising premiums twice – once by 40% and then again by 19%. The district court agreed with Prudential that Ms. Parmenter had not demonstrated that Prudential had breached any fiduciary duty, and agreed with Tufts that Tufts was not a proper defendant. As a result, the court dismissed the action. On appeal, the First Circuit affirmed the dismissal of Tufts because it was not involved in implementing the rate hike. However, it reversed as to Prudential, ruling that the “subject to” language was ambiguous. (This published opinion was Your ERISA Watch’s notable decision in its February 21, 2024 issue.) On remand, Ms. Parmenter filed a motion for class certification, proposing two overlapping classes. The district court noted that it was not deciding “which side’s interpretation of the ‘subject to’ clause wins the day. The court need only determine whether the clause can be interpreted uniformly on a class-wide basis. With this in mind, after considering the evidentiary proof put forward by Parmenter, of which there is little, the court finds that she has failed to demonstrate commonality.” The court ruled that because the “subject to” language was ambiguous, the question of how it should be interpreted “cannot be answered universally for the classes.” This was because ambiguous language requires extrinsic evidence in order to interpret it, which the court stated Ms. Parmenter had not supplied. Even if she had, the court noted that the plans at issue were sponsored by different employers at different times, and thus it was likely that each understood the plan differently, and that other plan terms that also changed over time might affect that understanding. Furthermore, each class member might have a different understanding as to what the language meant. In short, “The central dispute in this case can only be resolved by examining extrinsic evidence that is necessarily individualized in nature.” Ms. Parmenter did not present evidence demonstrating that the language at issue could be “interpreted uniformly,” and “[t]he court therefore cannot certify the Classes.” Ms. Parmenter’s motion was denied.

Tenth Circuit

McFadden v. Sprint Commc’ns, No. 22-2464-DDC-GEB, 2024 WL 3890182 (D. Kan. Aug. 21, 2024) (Judge Daniel D. Crabtree). On April 9, 2024, the court granted preliminary approval of the proposed class action settlement of this action challenging the actuarial assumptions and calculations of the joint and survivor annuities in the Sprint Retirement Pension Plan. In that decision (summarized in Your ERISA Watch’s April 17, 2024 newsletter) the court conditionally certified the class of plan participants and beneficiaries who began receiving joint and survivor annuity benefits throughout the class period, and preliminarily found the $3.5 million settlement, approximately 36% of the full potential for class wide damages, “fair, reasonable, and adequate” as Federal Rule of Civil Procedure 23(e) requires. Since then, notice has been sent and the court conducted a fairness hearing. Now plaintiffs move for final approval of the settlement, certification of the settlement class under Federal Rule of Civil Procedure 23(b)(1)(A), appointment of plaintiffs as class representatives, appointment of Izard, Kindall & Raabe, LLP and Foulston Siefkin LLP as class counsel, and awards of attorneys’ fees, expenses, and class representative service awards. Their motions were granted in this decision. First, the court certified the class, concluding it met both the requirements of Rule 23(a) and Rule 23(b), as the class is numerous, common questions unite the class, plaintiffs are typical of the class and adequate representatives, and the prosecution of separate actions would create the risk of varying and incompatible standards of conduct for the defendants. Second, the court approved the settlement, which it concluded was an informed negotiation, negotiated at arm’s length, a good result considering the uncertainty of litigation, treated the class members equitably, and, as before, is fair, reasonable, and adequate. Third, the court blessed the notice, both its content and the manner in which it was sent. Fourth, the court confirmed its prior appointments of plaintiffs as class representatives and their attorneys as class counsel. Fifth, the court awarded attorneys’ fees of one-third of the settlement amount and class counsel expenses of $25,926.01, concluding they were fair and appropriate given the result obtained through settlement. Sixth, the court held that the requested $5,000 class representative service awards to each named plaintiff were “unreasonable and orders a lesser award from the settlement fund,” of $100 per hour for each plaintiff. So, the court awarded $3,000 to one of the plaintiffs who devoted 30 hours of work, and $5,000 to the other plaintiff for his 50 hours of work. Accordingly, this litigation reached its conclusion and the settlement received its final blessing from the court.

Eleventh Circuit

Blessinger v. Wells Fargo & Co., No. 8:22-cv-1029-TPB-SPF, 2024 WL 3851244 (M.D. Fla. Aug. 16, 2024) (Magistrate Judge Sean P. Flynn). In this report and recommendation, the assigned Magistrate Judge recommended the court grant final approval of class settlement and grant plaintiffs’ unopposed motion for attorneys’ fees and costs in an action challenging the content of COBRA notices sent by Wells Fargo to its former employees. Plaintiffs alleged that Wells Fargo’s COBRA notices were defective, misleading, and even threatening. As a result of the allegedly deficient COBRA notices, plaintiffs assert they were dissuaded from electing continuing health coverage, which led to the loss of health insurance benefits and incurring out-of-pocket medical expenses. After the court denied the motion to dismiss the action, the parties engaged in discovery. “In all, Plaintiffs estimate they received approximately 4,000 documents obtained for discovery.” Plaintiffs subsequently moved for class certification. While plaintiffs’ motion for class certification was pending, the parties successfully mediated, and informed the district judge of the settlement. The settlement class is defined as all participants and beneficiaries of the Wells Fargo health plan who were sent COBRA notice and did not elect COBRA coverage, excluding individuals who entered into arbitration agreements with Wells Fargo. The settlement class consists of 50,627 individuals. The settlement, which resolves all claims in this action, requires Wells Fargo to deposit $1 million into a qualified settlement fund. “Under the Settlement, the Net Settlement Proceeds will be distributed to eligible Settlement Class Members who submit valid and timely claims.” Each settlement class member who submits a timely and valid claim will receive a check out of the settlement fund “for up to Twenty Dollars and Zero Cents ($20.00).” The settlement class members will have 60 days to submit a claim after notice of settlement is mailed to them. However, settlement class members may opt out or object to the settlement. Class counsel moved for fees of 30% of the gross settlement, $300,000, and costs of $10,772.94. The Magistrate found the named plaintiffs had standing to bring this case, that the class met the requirements of Rule 23, that plaintiffs and their counsel “vigorously represented the Settlement Class,” and that the class action settlement itself was fair, reasonable, and adequate. In particular, the Magistrate stated, “the per-class-member award ($20.00) is within the range of reasonableness and approximates settlement awards approved by courts in the Eleventh Circuit in other COBRA notice class actions.” Further, the Magistrate noted that success at trial was uncertain, and because this case involves informational injuries, even if the plaintiffs were to prevail the court could exercise its discretion to “elect a statutory damages award of zero.” The Magistrate also found it significant that “there have been no objections and only three out of 50,627 Settlement Class Members opted out of the class.” In addition, the Magistrate Judge identified no issues with the adequacy of the notice. Finally, the report ended with the Magistrate’s conclusion that the requested attorneys’ fee award of 30% of the fund was appropriate given the time and labor devoted to the action pursued on a contingency basis, and that class counsel should recover their litigation expenses, which consisted of filing fees, mediator fees, and court reporter fees. Based on the foregoing, the Magistrate recommended that the court grant plaintiffs’ motions.

Disability Benefit Claims

Eighth Circuit

Ziegler v. Sun Life Assurance Co. of Can., No. 4:22-cv-01115-SRC, 2024 WL 3874529 (E.D. Mo. Aug. 19, 2024) (Judge Stephen R. Clark). Plaintiff Taylor Ziegler applied for disability benefits after being diagnosed with lupus and related autoimmune disorders following the birth of her child. Sun Life Assurance Company of Canada denied her claim after its reviewing doctors concluded that there was no objective medical evidence “in the documentation to support these severe restrictions and limitations or that this young lady should be incapacitated for the rest of her life.” Following an unsuccessful administrative appeal, Ms. Ziegler filed this action to challenge the denial. Sun Life moved for summary judgment under an abuse of discretion standard of review. Ms. Ziegler opposed Sun Life’s summary judgment motion and argued that there is a genuine dispute “as to whether the plaintiff is required to prove disability by objective evidence,” and relied on Eighth Circuit precedent from House v. Paul Revere Life Ins. Co., 241 F.3d 1045 (8th Cir. 2001) to support this point. However, the court distinguished House and moreover emphasized that the Eighth Circuit “has since cabined the reach of House: ‘House does not state a universal rule that an administrator is precluded from insisting on objective evidence when it is appropriate under the terms of the plan and the circumstances of the case.” Here, the court stated that it was reasonable for Sun Life to interpret the plan to require objective evidence from Ms. Ziegler. “Having discretion to construe terms of the plan, plan administrators can reasonably deny benefits for lack of objective evidence.” Thus, the court concluded that Sun Life did not abuse its discretion by heavily relying on the lack of objective findings in the medical evidence. Next, the court concluded that even assuming there was conflicting medical evidence, “and it is dubious that a conflict in the evidence actually exists,” it was not an abuse of discretion for Sun Life to favor the opinions of its reviewing doctors over the opinions of Ms. Ziegler’s treating physicians. “Sun Life did exactly what the law commits to plan administrators – weigh evidence and come to a decision that has support in the record. It obtained the opinions of three reviewing doctors, and each doctor reviewed Ziegler’s file, disagreed with Dr. DiValerio’s diagnosis, and opined that Ziegler lacked a disability.” Accordingly, the court upheld Sun Life’s denial and granted its motion for summary judgment.

Ninth Circuit

Downs v. Unum Life Ins. Co. of Am., No. 23-cv-01643-RS, 2024 WL 3908106 (N.D. Cal. Aug. 19, 2024) (Judge Richard Seeborg). In March of 2020, pediatrician Dr. Maureen Downes needed to undergo gynecological surgery to remove both her uterus and a precancerous tumor. During her post-surgery recovery, the COVID-19 pandemic surged. Dr. Downes, then 70 years old with a history of cancer, heart disease, diabetes, and asthma, was very vulnerable to COVID-19 complications, and had a high mortality risk due to her underlying health issues, comorbidities, and age. Fearful of what a COVID infection might do to her, and unable to practice medicine at home, Dr. Downes applied for long-term disability benefits. In the court’s findings of fact and conclusions of law under Rule 52(a), the court became the first court in the country to explicitly decide “whether a present condition that puts a beneficiary at high risk of COVID-19 but would not otherwise prevent them from completing their usual occupational responsibilities constitutes a disability.” Under de novo review of Dr. Downes’s unique circumstances, the court’s answer was yes. The court rejected Unum’s attempts to trivialize Dr. Downes’s concerns. “Unum insists Plaintiff’s fear of COVID-19 cannot constitute a disability because, under her theory, ‘every healthcare worker aged 65 and up would have been deemed disabled had they made a claim for disability benefits during the pandemic.’ Notwithstanding that this statement ignores the plethora of medical issues Plaintiff experienced, Unum’s floodgates scenario is unrealistic. Plaintiff’s concerns were limited to a particular time period – the immediate advent of COVID-19, which was so serious that it caused a global shutdown. Moreover, Plaintiff’s age and underlying medical impediments placed her at severe risk of infection and, not trivially, death.” The court also stated that it found informative several cases where a court concluded that a risk of relapse could constitute a present disability. Further, the court agreed with Dr. Downes that the specific nature of her work placed her at greater exposure risk to COVID-infected patients, and that this fact should not be downplayed or discounted. Accordingly, the court was satisfied that Dr. Downes proved by a preponderance of evidence that she met her plan’s definition of disability and qualified for benefits. Judgement was therefore entered for Dr. Downes.

ERISA Preemption

First Circuit

Cannon v. Blue Cross & Blue Shield of Mass., Inc., No. 23-CV-10950-DJC, 2024 WL 3902835 (D. Mass. Aug. 22, 2024) (Judge Denise J. Casper). Plaintiff Scott Cannon is the representative of the estate of Blaise Cannon, who died from complications from asthma. Before his death, Blaise was insured by defendant Blue Cross & Blue Shield of Massachusetts, which denied his request for coverage for a Wixela Inhub inhaler. Plaintiff brought this action in Massachusetts state court alleging a variety of state law causes of action in which he accused Blue Cross of violating the terms of the benefit plan and for being responsible for Blaise’s death. Blue Cross removed the action to federal court and filed a motion for dismiss, arguing that plaintiff’s claims were all preempted by ERISA. The court denied the motion as premature, ruling that it would allow discovery on the preemption issue. (Your ERISA Watch covered this decision in its November 15, 2023 edition.) The parties conducted discovery, after which Blue Cross resumed its preemption argument in a motion for summary judgment. Plaintiff conceded that four of his six claims were preempted by ERISA, but contended that his claim for wrongful death and his corresponding claim for punitive damages should survive. The court disagreed and granted Blue Cross’ motion, ruling that both claims “are preempted both because the Court would be required to consult the Policy to resolve them and because they arose from the alleged improper denial of benefits. Each claim relies upon the same premise: that Defendant improperly denied Blaise a particular health benefit, thus resulting in his death.” Plaintiff argued that his claims were not preempted because “the Massachusetts wrongful death statute provides a distinct form of relief,” but the court was unpersuaded: “the wrongful death claim is an action for damages related to a breach of plan and is therefore precisely the type of alternative enforcement mechanism disallowed under ERISA § 502(a).” The court further ruled that even if the complaint asserted an ERISA claim, it would still fail because it sought a remedy unavailable under ERISA: “ERISA ‘does not create compensatory or punitive damage remedies where an administrator of a plan fails to provide the benefits due under that plan.’” Thus, the court granted Blue Cross summary judgment.

Seventh Circuit

Carnes v. HMO La., No. 23-2903, __ F. 4th __, 2024 WL 3873528 (7th Cir. Aug. 20, 2024) (Before Circuit Judges St. Eve, Kirsch, and Lee). Plaintiff-appellant Paul Carnes sued the administrator of his employer-sponsored health plan alleging it violated Illinois state insurance law for “vexatious and unreasonable” failure to pay the amounts of his outstanding medical claims for the treatment of a degenerative disc disease. As the ERISA-governed plan at issue is self-funded, the district court dismissed Mr. Carnes’s complaint on ERISA preemption grounds, but allowed him leave to amend his complaint to plead a cause of action under ERISA. Mr. Carnes declined this opportunity and instead moved for reconsideration. The district court affirmed its earlier findings and denied the motion for reconsideration, closing the case. On appeal the Seventh Circuit agreed with the district court that Mr. Carnes’s state insurance law claim “falls squarely within ERISA’s broad preemption,” as he “seeks to enforce his rights under (and receive payment pursuant to) the health plan by arguing that HMO Louisiana impermissibly refused to pay him benefits, in violation of Illinois state law.” Further, the appeals court concluded that the state law claim was not saved by ERISA’s saving clause which normally allows the States to enforce state laws that regulate insurance because self-funded ERISA plans are exempt from state insurance regulating laws under ERISA’s deemer clause. Thus, the savings clause was found to be inapplicable. “At bottom, Carnes is aggrieved by HMO Louisiana’s refusal to pay his medical expenses, irrespective of how he structures his argument. Such a remedy is provided by ERISA.” Based on the foregoing, the court of appeals agreed with the district court that Mr. Carnes’s suit is preempted by ERISA, and because he does not seek to sue under ERISA, the Seventh Circuit affirmed the dismissal of the case.

Life Insurance & AD&D Benefit Claims

Sixth Circuit

Standard Ins. Co. v. Guy, No. 21-5562, __ F. 4th __, 2024 WL 3857926 (6th Cir. Aug. 19, 2024) (Before Circuit Judges Griffin, Bush, and Larsen). It is an old and established principle that a beneficiary of a life insurance policy should not be allowed to recover the proceeds if the beneficiary feloniously kills the insured. Forty-eight states and the District of Columbia have such a “slayer statute,” while Massachusetts and New Hampshire rely on case law to prevent murderers from profiting from their wrongdoing. In this interpleader action Standard Insurance Company sought a court order to determine who is entitled to life insurance benefits from policies belonging to a woman who was brutally murdered by her son, appellant Joel M. Guy, Jr. The district court concluded that both Tennessee’s state slayer statute and federal common law prevent Mr. Guy from benefiting from his matricide. On appeal, the Sixth Circuit agreed. Rather than definitively resolve the issue of ERISA preemption over the state slayer statute, the court punted and agreed with the lower court that even if ERISA was preemptive, Mr. Guy could not recover under federal common law. Although there are many virtues of ERISA’s broad pay-the-designated-beneficiary rule, the court nevertheless noted that the rule is not absolute, and demonstrated this by way of cases involving undue influence or fraudulently procured designation. According to the court, slayer statutes similarly stand for the principle that “the law prohibits a wrongdoer from benefiting from his crime,” and appropriately assume that an insured would not have named their beneficiary had they known what would occur. Thus, just as a person cannot receive insurance payments after setting fire to a building, under longstanding and “near axiomatic” common-law slayer rules, “a beneficiary cannot maintain an action for insurance proceeds after having murdered the insured.” As a result, the Sixth Circuit affirmed the holdings of the lower court. 

Medical Benefit Claims

Fourth Circuit

Carl A.B. v. Blue Cross Blue Shield of N.C., No. 1:22-CV-84, 2024 WL 3860072 (M.D.N.C. Aug. 19, 2024) (Magistrate Judge Joi Elizabeth Peake). Eating disorders and substance use disorders are two of the deadliest mental health diseases. Plaintiff L.B. suffers from both illnesses, and has a history of suicide attempts and hospitalizations. Like so many families before them, L.B. and her father, Carl A.B., have struggled to get their insurance plan to pay for residential treatment. At first, Blue Cross denied coverage for failure to receive pre-authorization. However, the family successfully appealed, arguing that L.B. was experiencing a medical emergency at the time. This triggered a new review of the treatment. Unfortunately, Magellan Healthcare upheld the denial based on its own internal residential behavioral health level of care guidelines, concluding that L.B. was not in acute distress, and that she could therefore be safely treated at a lower level of care. In this ERISA action, the family challenges that denial and seeks payment of the $42,940 in total costs that resulted from L.B.’s treatment. In a report and recommendation, the assigned Magistrate Judge recommended the court grant summary judgment in favor of the insurance companies and deny the family’s cross-motion for summary judgment. The family argued that the denial was an abuse of discretion. First, the family contends that Blue Cross and Magellan failed to comply with ERISA’s procedural requirements by failing to respond to their appeals within the mandated timeframe, failing to cite specific plan language, failing to identify the healthcare professional who reviewed the claim, and failing to provide documents upon request. While the Magistrate agreed that the record demonstrated that defendants violated ERISA’s procedural requirements, the judge nevertheless concluded that there was not even “any casual connection between any delay or other procedural violation in this case and the final determination,” and that plaintiffs were not prejudiced by the procedural deficiencies. Thus, the Magistrate disagreed with the family that procedural and regulatory deficiencies established an abuse of discretion. Next, the Magistrate Judge concluded that defendants properly engaged with the evidence in the record and followed a reasoned and principled process, despite plaintiffs’ arguments to the contrary. The magistrate highlighted that there was evidence in the record that L.B. could have been safely treated at a lower level of care, including the fact that she was not a dangerous weight when she was admitted to the residential treatment program. Finally, the Magistrate did not fault defendants for focusing on acute care despite the plan language not including any such language. “As with all care, Defendants had the discretion to deny coverage which it reasonably determined was not medically necessary… In this context, the language used by Defendants in denying coverage was related to the Plan’s language, and, separately, directly responsive to the arguments raised by Plaintiffs in seeking coverage.” For these reasons, the Magistrate recommended that the denials be affirmed and judgment be entered in favor of defendants.

Pension Benefit Claims

Ninth Circuit

Baleja v. Northrop Grumman Space & Mission Sys. Corp., No. 22-56042, __ F. App’x __, 2024 WL 3858720 (9th Cir. Aug. 19, 2024) (Before Circuit Judges Tashima, Graber, and Christen). Plaintiffs, a class of employees, appealed the district court’s judgment against them after a bench trial in this ERISA class action brought against Northrop Grumman Space and Mission Systems Corp. Salaried Pension Plan, the plan’s administrative committee, and the Northrop Grumman Corporation. At issue were pension benefit calculations following corporate mergers among defense contractor giants Northrop Grumman and TRW, Inc. ESL was a subsidiary of TRW. Former employees of ESL experienced plan offsets from their old retirement fund which decreased benefits under the Northrop pension plan, in many cases to zero. In addition, the class of former ESL employees alleged that defendants breached their fiduciary duties by violating ERISA’s disclosure requirements. In this decision the Ninth Circuit identified several errors in the district court’s decisions, and affirmed in part, reversed in part, and remanded. To begin, the Ninth Circuit determined that plaintiffs’ claim for equitable relief for defendants’ breach of fiduciary duty was timely filed in 2017, as it was just three years after defendants’ issuance of the 2014 summary plan description which was “the ‘last action’ in a series of allegedly misleading statements about the pension offset.” Therefore, the court of appeals stated that the district court erred in holding that plaintiffs’ claim was untimely. Moreover, the Ninth Circuit rejected “as unsupported by law, Defendants’ contention that Plaintiffs waived the argument about the 2014 summary plan description by failing to mention that specific document in the operative second amended complaint.” And although the district court did not address the merits of the Section 502(a)(3) fiduciary breach claim, the Ninth Circuit exercised its discretion to reach the issue, and concluded that there was a genuine issue of material fact about whether defendants breached their fiduciary duty of disclosure by issuing a series of misleading statements about the pension offsets. As ERISA requires that summary plan descriptions “be written in a manner calculated to be understood by the average plan participant,” the Ninth Circuit determined that a reasonable finder of fact could conclude “that Defendants’ confusing, convoluted, and misleading communications failed to meet ERISA’s disclosure requirements.” Therefore, the court of appeals reversed the district court’s summary judgment and remanded for trial on the fiduciary breach claim. As for the benefit claims under Section 502(a)(1)(B), the appeals court’s position was nuanced. “In large part, the district court permissibly concluded…that Defendants prevailed on Plaintiffs’ ERISA claim for benefits under 29 U.S.C. § 1132(a)(1)(B).” The Ninth Circuit found that the plan administrator did not abuse its discretion by interpreting the plan as authorizing offsets for payouts from the ESL Retirement Fund, “[d]espite the arguably unfair result of Defendants’ application of the offset, which caused the severe reduction or even elimination of many class members’ pensions.” However, the court of appeals held that the plan administrator abused its discretion by failing to find that the plan provided a guaranteed minimum monthly benefit of $20 for each year of service that could not be offset. The Ninth Circuit found as a matter of law that the plan text of the plan guaranteed this monthly minimum benefit and found defendants’ interpretation of the plan reading otherwise was an abuse of discretion. This aspect of plaintiffs’ claim for benefits was thus reversed and remanded to the district court for further proceedings. Accordingly, the district court’s summary judgment on plaintiffs’ fiduciary breach claim was reversed and remanded for trial, and the district court’s judgment in favor of defendants on the benefits claim was affirmed in part and reversed and remanded in part as explained above.

Plan Status

Third Circuit

Weller v. Linde Pension Excess Program, No. 23-1293, __ F. App’x __, 2024 WL 3887275 (3d Cir. Aug. 21, 2024) (Before Circuit Judges Krause, Restrepo, and Matey). Plaintiff Mark Weller sued his former employer, Linde North America, under ERISA and state law alleging his benefits under the company’s excess pension program were undercalculated because they did not treat a settlement payment he received from Linde as “covered earnings.” The district court concluded that the plan, which in its current form made payments annually rather than as lump-sum payments upon retirement or termination, was not governed by ERISA. Thus, the court granted summary judgment to Linde on the ERISA claim. Nevertheless, the district court let the contract-related state law claims proceed to a jury trial. At the end of the trial, the district court granted judgment to Linde on the remaining claims. It determined that Mr. Weller was not short-changed and that the benefits were appropriately calculated under the terms of the plan. Mr. Weller appealed both the pre-trial and post-trial decisions. The Third Circuit affirmed both in this decision. First, the court of appeals agreed with the district court that the excess pension program is not subject to ERISA, as the plan in its current form does not defer retirement income. The court of appeals went on to state that the plan does not fall under ERISA simply because Mr. Weller received his final payment under the program after his employment with the company ended. “As we observed in Oatway, the mere fact of some post-termination payments does not by itself make a benefit plan subject to ERISA.” Thus, the Third Circuit held that the district court did not err in finding that ERISA does not govern the plan. Nor did the Third Circuit identify any error in the district court’s judgment as a matter of law that the settlement payment was properly excluded from Mr. Weller’s calculated earnings. Under the unambiguous plan language, the Third Circuit held that the “additional or special compensation” Mr. Weller received as part of his legal settlement was “not considered ‘earnings’ for [the plan’s] purposes.” Accordingly, the court of appeals affirmed the district court’s decisions regarding both the ERISA claim and the state law contract claims.

Fourth Circuit

Bowser v. Gabrys, No. 3:23-CV-00910-KDB-SCR, 2024 WL 3894056 (W.D.N.C. Aug. 21, 2024) (Judge Kenneth D. Bell). Of all the types of employee benefit plans, severance plans are often the most contentious. Although somewhat counterintuitive, severance plans are considered welfare plans, not retirement plans, and they play by their own set of rules. Whether or not they are governed by ERISA depends on whether they require “an ongoing administrative program to meet the employer’s obligations.” This case provides an example of a district court deciding that a severance plan is not governed by ERISA because it does not require the type of ongoing administration contemplated by the Supreme Court in Fort Halifax Packing Co. v. Coyne. This action arose after Guest Services, Inc. (“GSI”) lost a contract it had with the federal government to Boeing. The then-CEO of GSI, Gerard T. Gabrys, informed the employees working on the government contract “that by leaving GSI to work for Boeing, rather than retiring from the workforce altogether, the employees were not eligible to receive money under GSI’s Termination Leave Pay policy.” The workers were not happy to hear this, and brought this action under both state law and ERISA seeking severance payments under the policy, as well as money that was taken out of their paychecks to fund benefits under the severance policy. GSI and Mr. Gabrys moved to dismiss plaintiffs’ complaint. Finding that the policy does not fall under ERISA and that the state law claims must be dismissed for lack of subject matter jurisdiction, the court granted the motion to dismiss. The determining factor was the fact “that payments under the Policy were made via one-time, lump-sum checks.” It was not significant to the court that severance payments are not automatic upon retirement, and that they instead require a judgment call about whether an employee was terminated “for cause.” The court concluded that such a determination “does not suggest meaningful discretion,” and “appears to be a purely ministerial task” of checking a personnel file, which does not imply an ongoing administrative scheme. “In short, the Policy, as alleged by Plaintiffs, is only a one-time lump-sum payment determined by a consistent formula that is offered to eligible retiring employees as part of Defendant’s existing infrastructure. The court therefore concludes that there is no ongoing administrative plan required in connection with GSI’s alleged obligations and thus no ERISA benefit plan.” The court further found that plaintiffs had not adequately alleged that $75,000 or more was in controversy, which was required in order for the court to exercise diversity jurisdiction over plaintiffs’ state law claims. Because ERISA did not apply, which would grant federal question jurisdiction, and because plaintiffs had not established diversity jurisdiction, the court ruled that it had no jurisdiction over the matter, and thus granted the motion to dismiss and closed the case.

Pleading Issues & Procedure

Sixth Circuit

Gil v. Bridgestone Americas, Inc., No. 3:22-cv-00184, 2024 WL 3862445 (M.D. Tenn. Aug. 19, 2024) (Judge Eli Richardson). Plaintiff David Gil was employed by Bridgestone Retail Operations LLC for decades and is a participant in its defined benefit ERISA pension plan. In this action, Mr. Gil alleges that the fiduciaries of the plan have breached their duties through repeated misrepresentations about the amount of Mr. Gil’s accrued pension benefit and that they breached their fiduciary duties and violated ERISA Section 502(c) by failing to furnish pension benefit statements or any governing plan documents at three-year intervals, or even upon request. Bridgestone Retail Operations LLC and its parent corporation, Bridgestone Americas Inc., moved to dismiss Mr. Gil’s complaint. The motion to dismiss was only granted in one small respect. The court granted Bridgestone Retail Operations LLC’s motion to dismiss the statutory penalties claim under Section 502(c) for failure to provide pension benefit statements, because the plan unambiguously names Bridgestone America Inc. the plan administrator and such claims can only be sustained against the plan administrator. However, in all other respects the court held that the complaint plausibly asserts its causes of action against the Bridgestone defendants. Defendants’ arguments for dismissal were viewed by the court as premature merits challenges more appropriately assessed at a later stage in litigation. Accordingly, Mr. Gil’s fiduciary breach and statutory penalty claims both survived defendants’ challenge.

Eleventh Circuit

United Healthcare Servs. v. Hosp. Physician Servs. SE, No. 1:23-CV-05221-JPB, 2024 WL 3852337 (N.D. Ga. Aug. 16, 2024) (Judge J.P. Boulee). United Healthcare Services, Inc. administers health care benefits for about one in four Americans – over 80 million people. It is easily the largest healthcare provider network in the United States. With great size comes great power, and the ability to pressure providers to join its healthcare network. Still, some providers resist. This action involves a group of interrelated out-of-network medical groups who have been suing United throughout the country for systematic under-reimbursement of emergency and non-emergency medical services provided to patients insured by United. United seeks declaratory relief related to the reimbursement of these out-of-network healthcare claims. “According to United, it faces the choice of: (1) complying with its obligations under federal law (ERISA) to calculate benefits in accordance with the payment rates and methodologies in the Plans when reimbursing Defendants for out-of-network services; or (2) acquiescing to TeamHealth’s contention that state law requires United to reimburse claims for Defendants at their full-billed charges… Ultimately, United seeks a declaration that any claim that seeks reimbursement in excess of the amount determined in accordance with the rates and methodologies stated in the Plans for out-of-network services are preempted by ERISA and the Supremacy Clause of the United States Constitution.” Defendants moved to dismiss the complaint for lack of subject matter jurisdiction. Defendants argued that there is no actual controversy between the parties because it has not sued United in Georgia. In the alternative, defendants argued that the court should exercise its discretion to deny declaratory relief to United. The court began with the controversy requirement. The court found that because United and the healthcare groups dispute reimbursement rates “there is a substantial [and live] controversy between parties with adverse legal interests.” Further, the court stated that it was “not persuaded by Defendants’ argument that the controversy requirement is not satisfied because Defendants have no present intent to sue United over claims arising in Georgia.” To the court, the record showed that the healthcare groups have submitted claims for services provided to patients insured by United in Georgia, that they have demanded full billed charges in each case, and that United has not paid the billed amounts but instead pays what it believes it is obliged to under the terms of ERISA-governed plans. Given these facts, the court was satisfied that United met its burden of proof to show jurisdiction, and the court therefore denied the motion to dismiss based on the argument that the case does not present a live controversy. Moreover, the court declined to exercise its discretion to deny declaratory relief. The court disagreed with defendants that “the preemption issue has already been clearly decided in their favor.” To the contrary, the court did not agree that the issue of ERISA preemption was a settled matter and stated that it saw no reason it should abstain. “Simply put, this is not a case where there is a real prospect of a non-judicial resolution of the dispute or where conservation of judicial resources weighs heavily in favor of declining to exercise jurisdiction.” Thus, the court denied defendants’ motion to dismiss.

Provider Claims

Seventh Circuit

CEP America-Illinois v. Cigna Healthcare, No. 23 C 14330, 2024 WL 3888879 (N.D. Ill. Aug. 21, 2024) (Judge Matthew F. Kennelly). CEP America-Illinois, a physician-owned emergency room staffing group, sued Cigna Healthcare and its affiliates in Illinois state court seeking to recover payment for emergency medical services provided to patients insured with Cigna-administered healthcare plans. CEP contends in its complaint that beginning in 2022, “without warning or reason,” Cigna began paying less than half of what it paid just one year earlier to out-of-network providers for the same emergency medical services, “paying well-below a reasonable rate for CEP’s noncontracted physician services.” Cigna removed the action to federal court, arguing that CEP’s claims are preempted by ERISA. The court in this decision remanded the case to state court for lack of federal jurisdiction. It concluded that the complaint failed the two-part Davila test of complete ERISA preemption. “CEP’s claims do not meet the second part of the test in Davila because they implicate legal duties independent of the ERISA plans at issue.” The court distinguished this action as a “rate of payment” healthcare dispute between a provider and insurer, and thus categorized the state law claims as “regarding the computation of contract payments or the correct execution of such payments,” which do not involve the terms of any ERISA welfare benefit plan. In fact, the court noted that payment rates “are not specified in the terms of the ERISA plan themselves,” and illustrated this by the fact that insurance companies and healthcare providers have to negotiate payment rates “separate and apart from the terms of ERISA plans between Cigna and its members.” Importantly, Cigna does not dispute that it is required to cover the emergency services at issue, and has in fact paid for the services, just at rates that CEP finds unreasonably low. Based on the foregoing, the court determined that the state law contract claims are not completely preempted by ERISA, and that removal was improper. The action will accordingly proceed, once again, in state court. 

Remedies

Sixth Circuit

Washington v. Lenzy Family Inst., No. 1:21-cv-1102, 2024 WL 3860317 (N.D. Ohio Aug. 19, 2024) (Judge Budget Meehan Brennan). Plaintiff Leonard Washington sued his former employer, the Lenzy Institute Inc., and the other fiduciaries and plan administrators of its healthcare plans, alleging violations of ERISA for failure to provide summary plan descriptions and annual funding notices and failure to pay healthcare premiums deducted from employees’ paychecks. Mr. Washington alleges that defendants’ action resulted in loss of health insurance coverage and caused him to incur out-of-pocket medical expenses. In his litigation, Mr. Washington sought statutory penalties under ERISA Section 1132(c)(1), equitable monetary relief equivalent to his withdrawn insurance premiums and out-of-pocket medical expenses, pre- and post-judgment interest, and attorneys’ fees and costs. Defendants have not appeared in the matter. As a result, Mr. Washington moved for default judgment and determination of damages. The court entered judgment in Mr. Washington’s favor on his ERISA claims. Mr. Washington alternatively asserted state law causes of action, but the court found it unnecessary to decide whether ERISA preempts these claims because Mr. Washington sought identical relief under his ERISA and state law claims. As a result, the court set the alterative state law claims aside. As for damages, the court tackled the statutory penalties and equitable relief separately. First, the court awarded statutory penalties of $26,675, which equaled $25 per day for defendants’ failure to provide funding notices and summary plan descriptions. On balance, the court found a $25 per day per violation award appropriate given the fact that it took Mr. Washington a few months to discover the lapse in coverage and his failure to specify what medical treatment he decided to forgo. The court also awarded Mr. Washington $3,450 for defendants’ fiduciary breaches. This amount represented $506.98 in out-of-pocket medical expenses and $2,943.24 in non-forwarded premium payments. In addition, the court awarded the entirety of plaintiffs’ requested $50,791.50 in attorneys’ fees and costs of $2,592.13. The court concluded that Mr. Washington’s success in litigation, defendants’ ability to satisfy a fee award, the degree of bad faith and culpability present, and the deterrent factor of a fee award overwhelmingly supported granting the request for attorneys’ fees and costs. The court also concluded that counsel’s hourly rates of between $225-$250 per hour were reasonable. Finally, the court awarded pre- and post-judgment interest, both at a rate of 4.45%. Pre-judgment interest was awarded only on the compensatory portion of Mr. Washington’s award, not his statutory penalty award, but post-judgment interest was awarded on his combined total sum of $84,030.09. Accordingly, Mr. Washington found success and was made whole after defendants’ actions caused him and his family financial harm.

Venue

Ninth Circuit

Doe v. Blue Cross Blue Shield Healthcare Plan of Ga., No. CV-24-00476-PHX-MTL, 2024 WL 3898657 (D. Ariz. Aug. 22, 2024) (Judge Michael T. Liburdi). Plaintiff John Doe sued Anthem Blue Cross and Blue Shield under ERISA Section 502(a)(1)(B) after it refused to cover emergency air ambulance services required to save his young daughter’s life. Defendant moved to transfer venue to the Northern District of Georgia. John Doe did not file a response to the motion. While the court stated that it could have granted the motion summarily for this reason, it nevertheless addressed the motion to transfer on its merits, and agreed that transferring this case was in the interest of justice. The air ambulance took the child from a hospital in Phoenix, Arizona, to a children’s hospital in Atlanta, Georgia where lifesaving surgery was performed. Given the connection to Atlanta, the court determined that the transferee district was a more suitable and convenient choice of venue. And while the court recognized that plaintiff’s chosen forum was in Arizona, the court nevertheless afforded this fact little weight because “Plaintiff is a Georgia citizen,” and the family was only in Phoenix for vacation. Although the child’s medical emergency began in Arizona, the court stated that no other relevant events or contacts connected the parties to the District of Arizona at all. Thus, on balance, the court saw the Northern District of Georgia as the better choice of venue “based upon the convenience of the parties and witnesses and the interests of justice.” Blue Cross’s motion to transfer was accordingly granted.

Unlike employee contributions, employer contributions to 401(k) plans do not immediately vest, but instead do so under plan and ERISA vesting provisions, generally after three to five years of service with the employer. What happens to these contributions when employees leave covered employment before that time is at the center of numerous recently-filed lawsuits, including our three featured Cases of the Week.

The most meaty of these is Rodriguez v. Intuit Inc., No. 23-cv-05053-PCP, __ F. Supp. 3d __, 2024 WL 3755367 (N.D. Cal. Aug. 12, 2024) (Judge P. Casey Pitts). In this case, plaintiff Deborah Rodriguez brought a putative class action against Intuit Inc., her former employer and sponsor of the 401(k) plan in which she is a participant, and against the administrative committee that was the named plan administrator. The plan expressly granted Intuit discretionary authority with respect to management of forfeited nonvested amounts but also specified that such amounts could be used in certain circumstances to pay plan expenses, and in other circumstances could be applied towards Intuit’s safe harbor contributions, matching contributions, and/or profit sharing contributions.

Ms. Rodriguez alleged that defendants violated their fiduciary duties of prudence and loyalty and ERISA’s anti-inurement provision, and engaged in prohibited transactions, by using nearly all of the forfeited plan assets during the class period to reduce Intuit’s matching contributions. She alleged that defendants did so to benefit Intuit, rather than using these amounts to pay plan expenses, which would have benefited the plan participants. Plaintiffs also asserted but did not press a claim solely against Intuit for failure to monitor the committee.

Other than the failure to monitor claim, the district court held that Ms. Rodriguez adequately stated each count of her complaint and thus denied defendants’ motion to dismiss.

As an initial matter, the court held that Intuit functioned as a fiduciary by exercising discretionary authority with respect to whether and when the forfeitures could be used for contributions and that this was fiduciary, not plan sponsor, activity. 

The court then concluded that Ms. Rodriguez adequately alleged that defendants breached their duties of loyalty by using forfeitures in a way that saved Intuit millions of dollars a year in required contributions, concluding that plaintiff plausibly alleged that the plan did not authorize defendants to use the forfeitures in this manner. Furthermore, the court concluded that even if the plan had authorized defendants to act in this manner, this would not excuse them from meeting their duty of loyalty given that plaintiff also plausibly alleged that it did not benefit plan participants to use the forfeited amounts to meet Intuit’s contribution requirements rather than to defray plan expenses.

For similar reasons, the court concluded that plaintiff also adequately alleged that defendants did not act prudently because “Ms. Rodriguez has plausibly alleged not only that Intuit did not in fact comply with the terms of the Plan Document but also that a prudent employer in this particular context would have at minimum engaged in a ‘reasoned and impartial decision-making process’ considering ‘all relevant factors’ before determining how to use the forfeited funds in the best interest of the participants and beneficiaries.”

The court had no problem concluding that plaintiff plausibly alleged that the plan as a whole was damaged by the challenged conduct. Likewise, the court easily concluded that plaintiff stated a claim under ERISA’s anti-inurement provision through allegations that Intuit received millions of dollars in “debt forgiveness” by “electing to use the plan assets as a substitute for the Company’s own future contributions to the plan.”

The court next agreed that plaintiff plausibly alleged that defendants’ use of plan assets as an offset for future employer contributions was a use of plan assets for the benefit of Intuit, a party in interest, in violation of ERISA Sections 406(a)(1) and (b)(1), 20 U.S.C. § 1106(a)(1) and (b)(1). In so holding, the court reiterated that “Ms. Rodriguez has plausibly pleaded that Intuit acted as fiduciary and not a settlor with respect to the challenged conduct.”

The court likewise held that Intuit’s “reallocation of undisputed plan assets to reduce its own matching contribution” was a “transaction” of the kind that ERISA prohibits and that plaintiff’s allegations that “Intuit’s reallocation of forfeitures created a benefit to it to the detriment of the Plan by reducing the funds available to participants and for investment” were “sufficient to support a plausible inference that Intuit engaged in self-dealing.”

The same day the district court entered its decision in Rodriguez, a district court in Southern California denied reconsideration of its decision issued in May of this year denying a similar motion to dismiss by fiduciaries of the Qualcomm Inc. 401(k) plan in a similar suit challenging the use of forfeited contributions to offset employer contribution requirements. Perez-Cruet v. Qualcomm Inc., No. 23-cv-1890-BEN (MMP), 2024 WL 3798391 (S.D. Cal. Aug. 12, 2024) (Judge Roger T. Benitez).

Your ERISA Watch covered the May decision denying the motion to dismiss in our June 5, 2024 newsletter. Defendants then moved for reconsideration. As in their motion to dismiss, defendants once again directed the court to IRS regulation 26 C.F.R. § 1.401-7(a) and to a proposed Treasury Department guidance. They argued that their use of forfeited employer contributions was in compliance with the IRS rules and thus shielded from ERISA fiduciary liability. Defendants also pointed to a decision from the Northern District of California dismissing a similar case, Hutchins v. HP Inc., No. 23-cv-5875-BLF (N.D. Cal. June 17, 2024). The court was not persuaded, however. It noted that defendants were mostly reasserting previously presented arguments and facts that it had already considered and rejected. The court also found Hutchins inapposite in that ERISA breach of fiduciary duty claims are “inherently fact specific,” and the Hutchins court itself “found that its plaintiffs might be able to plausibly allege a claim based on more particularized facts or special circumstances and granted leave to amend.” Finally, the court rejected defendants’ motion to certify an interlocutory appeal, concluding that such an appeal would likely slow, not advance, “the ultimate termination of the litigation,” and noting that it was ready to resolve the case on its merits.

In the third forfeiture decision this week, a district court in Kansas granted a motion by plan participants to amend their ERISA plan mismanagement complaint to assert new causes of action related to their employer’s forfeited contributions practices. Middleton v. Amentum Gov’t Servs. Parent Holdings, No. 23-2456-EFM-BGS, 2024 WL 3826111 (D. Kan. Aug. 14, 2024) (Magistrate Judge Brooks G. Severson).

As an initial matter, the court spoke of the well-settled principle that courts should freely grant leave to amend “when justice so requires.” The court then considered and rejected each of the defendants’ three arguments opposing amendment. First, the court found that plaintiffs had not unduly delayed their proposed amendment because they filed their motion for leave to amend just one month after the first federal district court recognized such claims in Perez-Cruet. Second, the court determined that allowing plaintiffs to amend would not subject defendants to any prejudice beyond that inherent to all opposing parties in all civil litigation. Third, upon reviewing defendants’ futility arguments, the court found that it would be more expedient and efficient “to allow Plaintiff to file their proposed Third Amended Class Action Complaint,” and allow defendants the opportunity to challenge the sufficiency of the claims through a dispositive Rule 12(b)(6) motion, than to deny plaintiffs’ motion to amend. As did the court in Perez-Cruet, the district court in Kansas thus expressed a desire to address the case on its merits, and therefore permitted plaintiffs to amend their complaint.

Your ERISA Watch sees these recently-asserted forfeiture claims as a fascinating new trend in ERISA litigation. Will these cases continue to gain traction, or will they stall out? Stay tuned to Your ERISA Watch for further updates.

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

Breach of Fiduciary Duty

Second Circuit

Collins v. Northeast Grocery, Inc., No. 5:24-cv-80 (DNH/MJK), 2024 WL 3829636 (N.D.N.Y. Aug. 15, 2024) (Judge David N. Hurd). Four former employees of the grocery stores Tops Market and Price Chopper Supermarkets have sued the fiduciaries of the Northeast Grocery 401(k) Plan for plan mismanagement, breaches of fiduciary duties, and violations of ERISA. Plaintiffs asserted seven causes of action, including claims of disloyalty, imprudence, failure to monitor, and prohibited transactions. Defendants moved to dismiss the complaint for failure to state claims, and for lack of Article III standing. In a decision that was all over the place, the court identified problems with standing and problems with the sufficiency of the allegations. The court led with its analysis of the motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1), which it granted in part, dismissing the claims pertaining to funds the named plaintiffs did not personally invest in. Although the court acknowledged the “Second Circuit has not definitively resolved the issue of whether and to what extent participants of a defined contribution plan must demonstrate individual harm in order to bring claims concerning funds they did not personally invest it,” it opted to follow the approach adopted by “the majority of other courts,” which requires participants to allege “an injury to their own individual accounts by virtue of investing in at least one imprudent fund[.]” However, any claims that survived scrutiny under Federal Rule of Civil Procedure 12(b)(1), were ultimately dismissed under the court’s Federal Rule of Civil Procedure 12(b)(6) analysis. There, the court found that the complaint’s allegations were cursory and insufficient, that plaintiffs provided inadequate benchmarks, that they failed to allege underperformance that was sustained or substantial, and that the information included about the “virtually identical” services provided was overly vague. Consequently, the court dismissed the action in its entirety. Finally, the court denied leave to amend. “The Court recognizes that this is plaintiffs’ first attempt at setting forth these claims and courts should freely give leave to amend when justice so requires. Even so, amendment in this instance would be futile.” Because plaintiffs “simply request leave to file an amended complaint in their opposition memorandum without setting forth anything to suggest that they could cure the deficiencies identified here,” the court held “there is no indication that amendment is warranted.” Thus, plaintiffs’ request for leave to file an amended complaint was denied, and defendants’ motion to dismiss the entirety of the complaint was granted. 

Fifth Circuit

LeBoeuf v. Entergy Corp., No. 23-6257, 2024 WL 3742690 (E.D. La. Aug. 9, 2024) (Judge Ivan L.R. Lemelle). Plaintiffs are the four surviving children of decedent Alvin Martinez, who were named the beneficiaries of his ERISA-governed defined contribution pension plan after his first wife died. The adult children were denied pension benefits because their father eventually remarried and failed to ask his second wife to execute a surviving spouse waiver as to the savings plan’s beneficiary. In this action, the surviving children assert claims of fiduciary breach against the Entergy Corporation, as plan sponsor, the Entergy Corporation Employee Benefits Committee, as plan administrator and claims administrator, and T. Rowe Price Trust Company, as plan trustee. The Entergy defendants and T. Rowe Price separately moved to dismiss the complaint. The court granted the motions to dismiss in this order. First, the court determined that only the Committee exercised fiduciary functions over the plan meaning Entergy Corporation and T. Rowe Price were not fiduciaries, and that plaintiffs could not sustain fiduciary breach claims against them. Interestingly, the court disagreed with defendants that the complaint was actually alleging a benefits claim in disguise and that the relief plaintiff sought is payment of benefits under the plan. The Martinez family maintained that they cannot sustain a claim for benefits because the plan was required by law to distribute the 401(k) proceeds to the surviving spouse absent a spousal waiver. They contend that the matter at issue is defendants’ failure to communicate the need for a spousal waiver in order to maintain the beneficiary designation. And the court agreed. It noted that plaintiffs were seeking equitable relief through a surcharge in the form of money damages that was “not merely duplicative of their administrative denial of benefits.” Accordingly, the court found that plaintiffs did “not merely present a benefits claim in disguise, but a breach of fiduciary duty in its own right.” However, the court concluded that plaintiffs’ fiduciary breach claim nevertheless failed “as a matter of law.” The court concluded that it was clear from the complaint and from the uncontested documents attached to the motions to dismiss, that the “Committee accurately relayed ERISA provisions regarding legal beneficiaries and election of spousal waivers,” and that the Committee therefore met ERISA’s disclosure requirements. Thus, the court found that the children failed to state a claim for breach of fiduciary duty. Finally, the court expressed that it found amendment futile, and therefore dismissed the action with prejudice.

Seventh Circuit

Luckett v. Wintrust Fin. Corp., No. 22-cv-03968, 2024 WL 3823175 (N.D. Ill. Aug. 14, 2024) (Judge Mary M. Rowland). This putative class action involves the Wintrust Financial Corporation Retirement Savings Plan and the selection of the BlackRock LifePath Index target date funds (“TDFs”) in the plan’s investment lineup. According to plaintiff Lynetta Luckett the BlackRock TDFs suffered from sustained underperformance and the selection and retention of them constituted breaches of the fiduciaries’ duties. Ms. Luckett has not had great success convincing the court of the plausibility of her claims. Last July, Your ERISA Watch covered the court’s decision granting Wintrust’s motion to dismiss the original complaint. The motion to dismiss was granted with leave to amend, and Ms. Luckett filed an amended complaint with additional allegations and comparisons. Wintrust again moved to dismiss the complaint. The court again granted the motion to dismiss, this time with prejudice. As before, the court agreed with Wintrust that none of the three funds Ms. Luckett supplied as comparators, “the T. Row TDF, the Vanguard TDF, and the S&P target date index funds,” were adequate benchmarks, as they had important “substantive differences,” from the BlackRock TDFs including different glide path strategies, and management styles. The court was unmoved by the fact that the fiduciaries themselves compared the BlackRock TDF suite to these funds before deciding to select it. “Luckett thus argues that the Committee’s conduct is something like a concession; that is, the Committee’s act of comparing these funds means that the Court can also treat the funds as meaningful benchmarks.” But the court said this was not so. The court stated it was reluctant to punish the fiduciaries through civil liability for engaging in prudent due diligence. Ms. Luckett’s selected comparators, thus remained for the court, oranges against which an apple should not be subjected to scrutiny. Moreover, the court faulted the complaint’s allegations of the alleged underperformance itself, both its short duration and the relatively mild extent of it – less than 3% during any given quarter. This lack of severity was suggestive to the court that Wintrust did not breach its fiduciary duties, especially given the fact that ERISA does not require fiduciaries to pick the top-performing fund. The court was also doubtful “that the Committee had tunnel vision toward the fund’s glide path,” and rejected Ms. Luckett’s idea that the fiduciaries did not properly consider the needs of the plan participants. Finally, the court took the time to express that even assuming the BlackRock TDFs were the “wrong choice,” that that in and of itself does not show that the fiduciary decision-making process was deficient under ERISA. For these reasons, the court found that the complaint did not plausibly allege claims of fiduciary wrongdoing and therefore dismissed them all, without leave to amend, terminating the case.

Ninth Circuit

Su v. Bensen, No. CV-19-03178-PHX-ROS, 2024 WL 3825085 (D. Ariz. Aug. 15, 2024) (Judge Roslyn O. Silver). If you wanted to sell someone on Employee Stock Ownership Plans (“ESOPs”) you might tout how they are a unique employee benefit that gives workers a stake in a company through tax-deferred stock shares. But if you wanted to do the opposite, and warn someone about the many potential problems of ESOPs, you might point them towards this decision. Acting Secretary of Labor, Julie A. Su, brought this action against the three owners of a company that rents RVs to the public, defendants Randall Smalley, Robert Smalley, Jr., and Eric Bensen. The Acting Secretary alleges that defendants knowingly participated in fiduciary breaches and engaged in a prohibited transaction in the creation of the company’s ESOP and during its stock transaction. Following a sixteen-day bench trial, the court issued this order stating its findings of fact and conclusions of law. The story begins in 2013, when defendants started seriously considering succession planning. The three men were reluctant to take the company public and began speaking with individuals at their bank, Wells Fargo, about other potential options. They were then brought into contact with financial advisors at the consulting firm Chartwell, and it was there that they were introduced to the idea of establishing an ESOP. As part of its presentations Chartwell emphasized that ESOPs were beneficial in several ways, including the ability for the sellers of the stock to eliminate their capital gains taxes, the possibility that the three men could maintain control of the company and act as its board of directors, and the fact that ESOP transactions can have “superior timing,” “certainty of close,” and “ease in negotiating terms.” In other words, Chartwell not so subtly hinted “to Defendants it could manipulate the transaction’s terms to whatever way Defendants desired.” Defendants liked the sound of what they were hearing and decided to pursue selling their stock to an ESOP. Chartwell quickly recommended appointing professionals “on the opposite side of the transaction,” to ensure that defendants’ interest, desired sales price, and timing could all be achieved. To the court, these representations made by Chartwell to the defendants clearly demonstrated “that Chartwell did not view the negotiation process as a truly arms-length negotiation as required by ERISA.” Nevertheless, things proceeded apace. Reliance Trust Company was picked as the ESOP trustee, just as Chartwell had recommended. It would ultimately be revealed through discovery that Reliance and Chartwell did a lot of business together both on opposite sides of ESOP transactions, as here, and together on the same side of ESOP transactions. The companies were both financially incentivized to refer business to one another and to close the ESOP transactions they worked on. Perhaps influenced by these incentives, the ESOP transaction at issue here was executed on a very expedited timeframe, just 41 days, which defendants required in order to defer capital gains taxes. Under pressure to finish the transaction very quickly, Reliance failed to follow its own internal guidelines, and although it negotiated on the financial terms of the transaction, it did not care about other specifics of the deal, Reliance failed to negotiate over defendants’ insistence they be the sole members of the board of directors and retain complete control over the company, and also failed to raise any concerns about defendants’ high compensation. In the end the ESOP transaction closed on May 27, 2014 with the ESOP paying $105 million for the stock, despite Reliance still not knowing many crucial details about the transactions and not having had the time to properly scrutinize the financial valuation. The court would ultimately conclude that “Reliance was well aware that Defendants were the beneficiaries of a ludicrous one-sided transaction yet Reliance proceeded in clear breach of its fiduciary duties.” The court agreed with the Secretary’s expert that fair market value of the company equity was truly $33 million “not worth anything close to the $105 million Reliance and Defendants expected and agreed upon.” The court criticized the fact that no discount was applied to reflect defendants’ continuing control over the company, or to account for the company’s debt, and only a tiny discount was applied for the stock’s lack of marketability. When it came time to analyze the claims of breach of the duty to monitor Reliance, co-fiduciary liability for Reliance’s violations of ERISA, and knowing participation in fiduciary breaches and prohibited transaction, the court had no trouble finding in favor of the Secretary. “Entering into such a one-sided transaction, when Defendants knew precisely how one-sided it was, constituted a breach of Defendants’ duty to monitor Reliance.” And because the record establishes that the transaction was not even close to the fair market value, the court agreed that it was a non-exempt prohibited transaction with parties in interest. The court also stated that indemnification was wholly inappropriate under the terms of the Plan document as defendants engaged in “willful” and “intentional misconduct.” Accordingly, the Secretary was successful in her action against the selling shareholders. The case will now proceed to its bifurcated second act to determine liability and remedies. Accordingly, eager readers will have to continue checking in with our newsletter for updates on the proceedings still to come.

Class Actions

Fourth Circuit

Trauernicht v. Genworth Fin., No. 3:22-cv-532, 2024 WL 3835067 (E.D. Va. Aug. 15, 2024) (Judge Robert E. Payne). Plaintiffs moved for class certification in this breach of fiduciary duty action brought against the fiduciaries of the Genworth Financial Inc. Retirement and Savings Plan. In broad strokes, plaintiffs allege that the Genworth and the other plan fiduciaries breached their duties by retaining the BlackRock LifePath Index Funds, a suite of underperforming target date funds, in the plan as the plan’s qualified default investments. Plaintiffs’ experts calculated that losses of the plan surpassed $34 million dollars as a result of the BlackRock target date funds. They moved to certify a class of all of the plans’ participants and beneficiaries. In this decision the court certified a slightly narrower class made up of the 95% of plan participants, and their beneficiaries, whose plan accounts included investments in the BlackRock LifePath Index Funds at any time between August 1, 2016 to the date of judgement. The court began its class certification analysis by addressing Article III standing. Although the court stressed that resolution over the proper measurement and calculation of damages is inappropriate at this juncture, and that “Rule 23 simply requires losses be capable of measurement on a class-wide basis,” it nevertheless expressed that it found plaintiffs’ theory of harm and chosen investment alternatives plausible. In any event, the court had little difficulty concluding that both named plaintiffs sufficiently demonstrated constitutional standing “under their proposed model of damages to pursue their claims on the merits.” The court next agreed with plaintiffs that the class is easily ascertainable. Further, the court found its narrowed class definition met the requirements of Rule 23(a), as the class of thousands is sufficiently numerous, common questions around the target date funds unites the class, plaintiffs are typical of the absent class members as there are no true intra-class conflicts, and the named plaintiffs and their counsel, Miller Shah and Tycko & Zavareei, are adequate representatives committed “to vigorously prosecuting the case.” Finally, the court determined that certification of the class is appropriate under both Rule 23(b)(1)(A) and (b)(1)(B) as the plaintiffs are suing in a representative capacity on behalf of the Plan and individual suits could easily lead to incompatible standards of conduct for the plan fiduciaries, and because adjudication of the claims involves the recovery of plan assets on behalf of the plan making resolution of this lawsuit “dispositive of the interests of the other participants claims on behalf of the Plan.” Accordingly, the court appointed the named plaintiffs the class representatives and their attorneys as class counsel, and certified the class of plan participants and beneficiaries who invested in the challenged target date funds.

Disability Benefit Claims

Ninth Circuit

Ehrlich v. Hartford Life & Accident Ins. Co., No. 20-cv-02284-JST, 2024 WL 3745008 (N.D. Cal. Aug. 8, 2024) (Judge Jon S. Tigar). Plaintiff Steven Ehrlich brought this action after his long-term disability benefits under the TriNet group disability policy were terminated in 2019 by defendants Hartford Life and Accident Insurance Company, Aetna Life Insurance Company, and TriNet Group Inc. Mr. Ehrlich applied for long-term disability benefits based on a variety of physical health conditions including chronic Lyme disease, fibromyalgia, complex neurological conditions, and bacterial infections. Although depression was a symptom of his physical conditions, Mr. Ehrlich did not apply for benefits based on any mental-health condition. Nevertheless, defendants terminated benefits after their reviewing physician, who specializes in internal medicine and occupational medicine, conducted an independent medical examination (“IME”) of Mr. Ehrlich and opined that his disabling impairments were caused by profound depression and a probable conversion disorder, not any physical condition. In this action Mr. Ehrlich challenged defendants’ termination of his benefits under Section 502(a)(1)(B), and sought statutory penalties under Section 502(c)(1) for failure to comply with requests for information and documents. The parties filed competing motions for judgment. The court issued this lengthy order ruling on those motions. To begin, the court specified that abuse of discretion review was applicable given the plan’s grant of discretionary authority. But before the court could resolve the cross-motions, it stated that it needed to first determine how much weight to accord defendants’ structural conflict of interest. The court identified several questions it had “about the adequacy and impartiality of [defendants’] investigation,” into Mr. Ehrlich’s claim. Despite having procedures in place to reduce bias, the court concluded that it was more likely than not that defendants’ conflict of interest infiltrated their administrative decision-making process here. It identified several worrying inconsistencies and irregularities in the way Mr. Ehrlich’s claim was handled and investigated. For one, the court outlined the ways defendants took inconsistent positions with respect to whether the internist who conducted the IME diagnosed Mr. Ehrlich with a mental illness. No mental health provider was ever hired by defendants to assess Mr. Ehrlich and the internal medicine doctor was not tasked with assessing whether Mr. Ehrlich suffered from a mental illness in the first place. Making matters worse, the court noted defendants failed to consult with a different physician on appeal who was not consulted in connection with the initial adverse decision, despite ERISA’s requirements that they do so. More broadly, the court wrote, “Defendants have not pointed to any provision in the Group Policy, or to any other authority, that permits them to treat Plaintiff’s LTD benefits claim as being based on a mental health condition even though Plaintiff never applied for LTD benefits based on a mental health condition.” In addition, the court criticized the fact that defendants provided their reviewing doctors only with the reports of other peer reviewers who found Mr. Ehrlich was capable of working full time. The court also stated that defendants failed to ask Mr. Ehrlich for evidence necessary to perfect his claim, failed to engage in a meaningful dialogue, and failed to credit reliable medical evidence that supported a finding of disability. Taken together, the court was suspicious that defendants’ financial conflict of interest played a role in their ultimate denial and therefore reviewed the adverse decision with a moderate degree of skepticism. Under that skeptical mindset, the court was left “with a definitive and firm conviction that a mistake was committed when Defendants terminated Plaintiff’s LTD benefits…” Accordingly, the court found defendants abused their discretion and entered judgment in favor of Mr. Ehrlich on his claim for benefits. The court then ordered the parties to submit briefs setting forth their positions about the appropriate remedy. Finally, the court entered judgment in favor of defendants on Mr. Ehrlich’s statutory penalties claim. The court said it was plaintiff’s burden to point to evidence demonstrating defendants failed to comply with requests for information and that Mr. Ehrlich failed to do so. Thus, the parties’ cross-motions for judgment were each granted in part and denied in part as outlined above.

ERISA Preemption

Seventh Circuit

Branson v. Caterpillar, Inc., No. 23 CV 14329, 2024 WL 3823157 (N.D. Ill. Aug. 14, 2024) (Judge Manish S. Shah). In Illinois the disclosure of genetic information is regulated by the Illinois Genetic Information Privacy Act. Plaintiffs Kerry Branson and Shelley Dotson seek to represent a class and bring claims alleging violations of the Act against a company they applied to work for, defendant Caterpillar, Inc. Plaintiffs assert two claims. First, they allege that the company violated Section 25(c)(1) “which prohibits employers from requesting genetic information of an individual or their family members as part of a preemployment application.” Second, plaintiffs assert a claim alleging a violation of Section 25(e), “which prohibits employers from using genetic information in furtherance of a workplace wellness program.” Caterpillar moved to dismiss the complaint. In this decision the court denied the motion to dismiss the first cause of action, but granted the motion to dismiss the second, as preempted by ERISA Section 514(a). The court concluded that dismissal was appropriate because the wellness program is part of an ERISA-governed employer benefit plan and Section 25(e) relates to the plan. “As pled in the amended complaint and based on the undisputed assertion that the wellness program fell under the company’s ERISA plan, Branson’s claim under Section 25(e) of the GIPA is preempted by ERISA.” Dismissal of the second cause of action was without prejudice.

Eighth Circuit

Securities Indus. & Financial Markets Assoc. v. Ashcroft, No. 23-cv-04154-SRB, 2024 WL 3842112 (W.D. Mo. Aug. 14, 2024) (Judge Stephen R. Bough). After penning an op-ed in the Missouri Times titled “Opinion: It’s Time to Rein In ESG,” the Secretary of the State of Missouri, John Ashcroft, took up the issue of socially minded investing through legislation with the Commissioner of the Missouri Securities Division, Douglas Jacoby, and enacted two Rules captioned the “Dishonest or Unethical Business Practices by Broker-Dealers and Agents” and the “Dishonest or Unethical Business Practices by Investment Advisers and Investment Adviser Representatives” which regulate financial professionals in the state and require them to obtain a signature from investors consenting to investments with “nonfinancial” and “social objective[s].” Each rule mandates that the written consent form investors must sign contain mandatory language that “includes an express acknowledgment that securities recommendations or investment advice will result in investments and recommendations that are not solely focused on maximizing a financial return for the investor.” Unhappy with these Rules, a trade associations of broker-dealers, asset managers, investment advisers, and banks, plaintiff Securities Industry and Financial Markets Association, filed this action against Mr. Ashcroft and Mr. Jacoby seeking declaratory relief and permanent injunction enjoining the two Rules in their entirety. Plaintiff asserted four causes of action in their complaint. Count one asserts the Rules are expressly preempted by the National Securities Markets Improvement Act of 1996 (“NSMIA.”) Count two alleges the Rules are preempted by ERISA. Count three contends that the Rules violate the First Amendment’s protection against compelled speech. Finally, count four is a claim that the Rules are unconstitutionally vague. The parties filed competing motions for summary judgment under Federal Rule of Civil Procedure 56. Plaintiff moved the court to declare the Rules preempted and unconstitutional and to enjoin defendants from taking any steps to enforce them. Plaintiff’s motion was wholly granted in this order, while defendants’ summary judgment motion was denied. First, the court addressed the merits of each of the four causes of action and concluded that plaintiffs succeeded on the merits of all four. The court found that the Rules were expressly preempted by NSMIA because they impermissibly require the financial professionals to make and keep records that differ from and are in addition to the federal requirements. So too for ERISA preemption. The court explained that the Rules “pose an obstacle to ERISA’s comprehensive remedial scheme,” because the Rules dictate and restrict the decision-making authority of ERISA fiduciaries by “creating a non-ERISA prohibition against ERISA-compliant fiduciary advice.” In addition to federal supremacy clause issues, the court also agreed with plaintiff that the Rules are in violation of the First Amendment by requiring scripted speech that is controversial and not wholly accurate. As a case and point, the court highlighted the Rules’ requirement that investors “acknowledge their choice to surrender higher returns for non-financial objectives.” And, to add insult to injury, the court also agreed with the industry group that the Rules were moreover unconstitutionally vague as they fail to define “nonfinancial objective,” and potentially create problems around any investment strategy that is not solely interested in achieving the highest possible returns on the investments “even when such strategies are the riskiest.” For all of these reasons, the court entered summary judgment in favor of plaintiff on all four counts. Having achieved success on the merits of their claims, the court further determined that a permanent injunction was appropriate here because plaintiff demonstrated irreparable harm, their harm outweighs any interest defendants have in enforcing the Rules, and a permanent injunction is in the public interest because the public “has a compelling interest in protecting First Amendment rights.” Thus, the court entered a permanent injunction prohibiting the Secretary of State and the State Securities Commissioner from implementing, applying, or taking any action to enforce the Rules statewide.

Medical Benefit Claims

Ninth Circuit

R.R. v. Blue Shield of Cal., No. 3:22-cv-07707-JD, 2024 WL 3748331 (N.D. Cal. Aug. 8, 2024) (Judge James Donato). This case arises from defendant Blue Shield of California’s denials of a family’s claim for $225,000 in unreimbursed medical costs from their minor son’s stay at a residential treatment center. The boy, plaintiff E.R., began receiving treatment at the long-term residential treatment facility after being involuntarily committed to hospital psychiatric wards on three separate occasions. During each event, E.R. was exhibiting violent and psychotic behaviors and was hurting or threatening to hurt himself and his family members. “Throughout this time, E.R. also experienced hallucinations.” Although the healthcare plan covers residential treatment, Blue Shield denied coverage to the family because it concluded that residential treatment was not medically necessary under the Magellan Care Guidelines. Under these guidelines, round the clock residential treatment is appropriate for individuals who are a danger to themselves or others due to hallucinations or persistent thoughts of suicide or homicide, or has severe mental health conditions that seriously impact daily living. Believing that E.R.’s stay met this criteria, and that he could not have been safely treated at a lower level of care, the family appealed the adverse decision, and eventually filed this action under ERISA. The parties filed competing motions for summary judgment on the claim for benefits. However, before the court reached the merits of the denial, it needed to assess the appropriate standard of review and address the issue of exhaustion. First, plaintiffs argued that Blue Shield’s determination should be reviewed de novo, despite the plan granting it discretionary authority, because the California insurance code renders discretionary provisions unenforceable. The court disagreed. It stated that Section 101110.6 of the California Insurance Code did not apply here, because the plan at issue is a managed health care plan governed instead by the Knox-Keene Act. Accordingly, the court concluded that it would review the denial under deferential arbitrary and capricious review. Next, the court disagreed with Blue Shield that plaintiffs failed to exhaust all of their claims. It determined that Blue Shield’s denial applied uniformly for the entirety of E.R.’s stay and that it would therefore review the family’s claim regarding E.R.’s stay through the date of his discharge. Further, the court determined that it would permit Blue Shield to cite the administrative record even though it did not do so in great detail throughout the administrative process. “Marshalling additional evidence to bolster an existing reason is different from offering new reasons…Blue Shield based the denial of coverage on medical necessity grounds, and relied on the same guidelines throughout the administrative process. Although Blue Shield’s initial denial was quite concise, it articulated a basis for denial that has remained consistent. Consequently, Blue Shield’s citations to the record are permissible, and will not be disregarded.” With these preliminary matters addressed, the court proceeded with its discussion of the merits of the denial. Although the court noted there “is no doubt that E.R. has a serious psychiatric condition and has suffered substantially from it, as has his family,” it nevertheless felt that it could not disturb the denial under an abuse of discretion review standard. Despite sympathizing with the family and their struggles to get care for their son, the court did not feel that plaintiffs demonstrated that the denial was unreasonable, illogical, or without substantial support. And while there was certainly evidence in the record to support the medical necessity of the treatment E.R. received, including the opinions of all of his treating healthcare providers, the court expressed that none of that evidence was in direct conflict with Blue Shield’s ultimate conclusion that the treatment was not medically necessary under its guidelines. For these reasons, the court affirmed Blue Shield’s coverage denial and entered summary judgment in its favor.

Pension Benefit Claims

Second Circuit

Pessin v. JPMorgan Chase U.S. Benefits Executive, No. 23-25, __ F. 4th __, 2024 WL 3763363 (2d Cir. Aug. 13, 2024) (Before Circuit Judges Parker and Nardini and District Judge Rakoff). In this putative class action, plaintiff-appellant Joseph Pessin alleges that the fiduciaries of the JPMorgan Chase Retirement Plan made insufficient disclosures to the plan’s participants as the defined benefit plan transitioned into a cash balance plan. Mr. Pessin appeals the district court’s dismissal of his action wherein the court concluded that the complaint failed to state claims under ERISA because “Defendants provided adequate disclosures that explained how the retirement plan worked and did not mislead plan participants about the potential effect of the conversion on a plan participant’s accrued benefits.” The Second Circuit affirmed in part and reversed in part the district court’s dismissal. In part one of the decision, the court of appeals concluded that defendants sufficiently disclosed the “wear-away” periods of the cash balance plan and that defendants complied with ERISA Sections 404(a) and 102 because the summary plan descriptions “clearly and accurately explained how a plan participant’s benefits would be calculated,” and informed the participants of “how to access more information about their minimum benefits and obtain a benefit comparison.” The Second Circuit recognized that a plan administrator breaches its fiduciary duties “when it affirmatively misrepresents the terms of a plan or fails to provide information when it knows that its failure to do so might cause harm,” but concluded that was not what happened here. As a result, the Second Circuit distinguished two of its earlier cases examining fiduciary breaches in the context of defined benefit plans converting to cash balances plans on the basis that one involved fiduciaries providing inaccurate information, and the other involved fiduciaries actively concealing information. Nevertheless, the Second Circuit disagreed with the district court’s determination that the pension benefit statements complied with ERISA Section 105(a), and it addressed this error in the second half of its decision. The appeals court found the allegations that defendants sent inadequate pension benefits statements plausible because ERISA requires these statements to unambiguously indicate the participant’s “total benefits accrued,” and plaintiff alleged that defendants sent statements to “the putative class members that included only one of two alternative calculations of their benefits, and the calculation they provided to Pessin did not reflect the amount he was actually entitled to receive.” To the court, the language of the pension benefit statements did not adequately disclose the “total benefits accrued,” as it was insufficiently “individualized for each plan participant.” In addition, the Second Circuit concluded that the complaint adequately alleged that the Board breached its duty to monitor the performance of the JPMC Benefits Executive with respect to the allegedly deficient benefit statements. The court of appeals therefore determined that the district court erred in dismissing the Section 404(a) claim against the Board to the extent it was about pension benefit statements. Accordingly, the court of appeals reversed this aspect of the dismissal and remanded for further proceedings below.

Seventh Circuit

Pastva v. Auto. Mechanics’ Local No. 701 Union & Indus. Pension Fund, No. 22 C 2957, 2024 WL 3834020 (N.D. Ill. Aug. 15, 2024) (Judge Elaine E. Bucklo). Plaintiff Steve Pastva was a member of the Automobile Mechanics’ Local No. 701 union and has been working at various points throughout his career for employers who were parties to collective bargaining agreements with the union. In this action, Mr. Pastva contends that he was wrongfully denied benefits under the union’s pension fund, that the fiduciaries of the fund breached their duties, that the terms of the plan violate ERISA, and that the fund failed to turn over records and documents. The pension fund moved for summary judgment on all claims. The court first addressed the plan’s break in service provisions, which state that upon incurring a permanent break in service “a nonvested employee’s participation in the Plan, as well as ‘previous Pension Credits, Years of Vesting Service, and Period(s) of Accrual are cancelled’ and he must begin anew.” Contrary to Mr. Pastva’s contention, the court determined that the plan’s provisions were not in conflict with any subsections of ERISA and that the terms of the fund were permissible. As the plan grants the fund discretion to determine benefits, the court applied the arbitrary and capricious standard of review to the denial. In the end the court found that the “administrative record lacks evidence to cast doubt on,” the decision, and therefore concluded that the fund acted reasonably in denying the claim for benefits based on Mr. Pastva’s employment history. The court stated that because Mr. Pastva did not work for contributing employers for more than five years, his pension credits failed to vest, and consistent with the plan terms and ERISA, “each period of breaks in service canceled each preceding period of years of service.” Moreover, the court concluded that there was insufficient evidence to support Mr. Pastva’s claim that the fund failed to provide him requested documents. Similarly, the court did not find the fund in violation of ERISA’s recordkeeping requirements, as it concluded Mr. Pastva was not harmed by the fund’s failure. Finally, the court determined that the fund did not breach its fiduciary duties. For the foregoing reasons, the court granted the fund’s motion for summary judgment on all of Mr. Pastva’s claims.

Ninth Circuit

McClean v. Solano/Napa Counties Elec. Workers Profit Sharing Plan, No. 23-cv-01054-AMO, 2024 WL 3747389 (N.D. Cal. Aug. 7, 2024) (Judge Araceli Martínez-Olguín). Plaintiff Rodney McClean has worked as an International Brotherhood of Electrical Workers union electrician since 1974. In 2009, after 31 years of credited service in the industry, Mr. McClean sought to take disability retirement following a diagnosis of a rare degenerative disease. At first, Mr. McClean was told that his disability pension was conditioned on his receipt of Social Security Disability Insurance (“SSDI”) benefits. However, even after Mr. McClean began receiving SSDI benefits in 2011, his application for pension benefits remained pending. At some point, Mr. McClean was told that he needed additional years of service to qualify for benefits and that he was not fully vested. Mr. McClean relied on these representations and started teaching at union apprenticeship and training programs. Eventually, in 2021, Mr. McClean applied for pension benefits again. His fresh application was granted, and he was awarded a monthly pension benefit of less than $600. Mr. McClean felt this amount was less than 10% of what he was entitled to. Accordingly, he appealed. “To date, there has been no decision on the appeal.” In this action, Mr. McClean and his wife, plaintiff Joanna McClean, have sued the union’s defined benefit and defined contribution pension plans and their fiduciaries under ERISA. Plaintiffs allege claims for benefits, fiduciary breaches, and statutory penalties. Defendants moved to dismiss. They argued the claims warranted dismissal because they are untimely, because plaintiffs failed to exhaust administrative remedies, and because plaintiffs have failed to plead sufficient facts to support their causes of action. The court agreed in part. As an initial matter, the court declined to dismiss the claims as untimely or for failure to exhaust administrative remedies. The court emphasized that under ERISA’s claims handling regulations benefit claims cannot remain “pending for the length of time McClean’s application has remained unresolved.” Because defendants have not complied with ERISA’s regulations, the court denied the motion to dismiss the wrongful denial of benefit claim for failure to exhaust. Moreover, the court concluded that the complaint adequately alleged a cause of action under Section 502(a)(1)(B). The motion to dismiss the claim for benefits was accordingly denied. However, the court dismissed the breach of fiduciary duty claims. It stated that plaintiffs failed “to differentiate their multiple and seemingly repetitive breach of fiduciary duty claims, which are lumped together in each count without reference to the district factual basis giving rise to each alleged breach.” Moreover, the court concluded that it could not plausibly infer the fiduciary breaches from the facts in the complaint as currently alleged. The motion to dismiss the fiduciary breach claims was therefore granted. Though the court did not dismiss plaintiffs’ claim for statutory penalties for violation of Section 1132(c)(1). The complaint alleges that plaintiffs sent written requests for documents on multiple dates in 2021 and 2022 and that defendants have never provided these documents. The court found these allegations sufficient to plead a claim for statutory penalties for withholding documents. The court still had a few more matters to address. First, it refused to dismiss the third-party administrator and the plan manager as defendants to this action. The court felt that it was not appropriate to address the fiduciary status of these defendants until after discovery. Second, the court agreed with defendants that Ms. McClean is not a proper plaintiff and granted the motion to dismiss her. Finally, the court dismissed the Local 6 union defendants from this action. The complaint, the court noted, acknowledges Mr. McClean was a Local 180 union member and plan participant. It therefore stated that the allegations in the complaint only sufficiently state claims against the Local 180 defendants, and that they fail to establish that Mr. McClean was a part of Local 6 or a participant in its pension plan. Insofar as the case the dismissed, dismissal was without prejudice and Mr. McClean was permitted to file a second amended complaint to cure the deficiencies identified in this order.

Plan Status

Eleventh Circuit

The Cobb Found. v. Hart County, No. 3:24-cv-00053-TES, 2024 WL 3823016 (M.D. Ga. Aug. 14, 2024) (Judge Tilman E. Self, III). Ordinarily, state and federal government pension plans fall outside the purview of ERISA. Matters get complicated, however, when the government is involved with a private company or non-for-profit. This case involves the relationship between a non-profit, Cobb Foundation, Inc., and Hart County, Georgia. In 1974, the Hart County Hospital Authority adopted a retirement plan, the Group Pension Plan for Employees of the Hart County Hospital. Then, in 1995, the Cobb Foundation and Hart County entered into a lease agreement and the Cobb Foundation began leasing the hospital and other related medical facilities to the County. Since the County no longer owned the hospital, its employees were terminated and no longer government employees. But most of the workers still worked for the hospital. “This change in employment also altered the employees’ ability to participate in the Plan – CFI was not a sponsor, employer, or subsidiary under the Plan, so any employees hired by CFI were no longer eligible for future benefit accruals.” One year later, in 1996, the County froze the plan. Jumping forward a few years to 2014, the Cobb Foundation and Hart County agreed to terminate the lease. Although the termination agreement between the parties did not mention the pension plan, the terms of the agreement required the County to “transfer and [convey] to [the Cobb Foundation] all of its rights, titles, interests, equities, claims and demands in and any assets owned by [the Cobb Foundation] which are utilized by [it] in the operations of the Hospital.”  Cobb Foundation paid the County $1.35 million. Hart County subsequently dissolved the Hart County Hospital Authority, but did not address the old pension plan or fund it. Cobb Foundation, which had acted as administrator of the Plan, informed the County that the Plan would become insolvent in June of 2024. The County maintains that the obligation to fund the Plan lies with the Cobb Foundation. The Cobb Foundation disagrees, and on May 20, 2024, it filed this action in the Superior Court of Hart County, Georgia, seeking declaratory relief against the County holding that it is not and has never been the sponsor of the Plan, that it does not have funding obligations to the Plan, and that the County is the Plan sponsor and holds the responsibility to fund the Plan. The County removed the action to federal court. It contends that the opposite is true, and that the Plan is not a government Plan but an ERISA-governed Plan. The County filed a motion to dismiss the complaint as preempted by ERISA. The Cobb Foundation filed a motion to remand the case to state court arguing the Plan is exempt from ERISA. Thus, the questions for the court became, one, is the Hart County Hospital Authority a political subdivision of the state of Georgia, and two, was the Plan established and maintained by the Hart County Hospital Authority. The answers to both questions were yes. The court stated that Georgia law makes clear that the Authority falls under ERISA’s definition of a government entity as courts analyzing Georgia law consistently determined that hospital authorities are instruments of the state, particularly in light of the fact that their boards are made up of individuals who are “responsible to public officials or to the general electorate.” And while the court acknowledged that the question of whether the Plan was established or maintained by the Authority is “a bit thornier,” it nevertheless drew the conclusion that as the Authority established the Plan, the Plan is designated a governmental plan exempt from ERISA. Accordingly, the court denied the motion to dismiss and granted the motion to remand.

Venue

Seventh Circuit

Juste v. Turning Pointe Autism Found., No. 23 CV 15143, 2024 WL 3834144 (N.D. Ill. Aug. 15, 2024) (Judge Thomas M. Durkin). Cassandra Juste sued her former employer, the Turning Pointe Autism Foundation, and the other fiduciaries of its defined contribution plan, The Capital Group Companies Inc. and American Funds Distributors, Inc., under ERISA for failing to process her enrollment application, failing to deposit her elective deferrals, and failing to match the contributions she elected to make. Defendants never disclosed to Ms. Juste that there had been an issue with her enrollment in the plan, and she only learned of these problems when her employment ended. Turning Pointe moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(3) for improper venue. Turning Pointe argued that Ms. Juste’s complaint was not properly filed in the Northern District of Illinois because her enrollment application for the plan included a forum selection clause which states that all actions must be brought in state or federal courts in California. In this decision the court agreed that venue was improper and granted the 12(b)(3) motion to dismiss. The court noted that the Seventh Circuit has considered forum selection clauses in ERISA actions before and praised the fact they “promote uniformity in plan administration and reduce administrative costs and in that sense are consistent with the broader statutory goals of ERISA.” Turning Pointe attached a declaration from one of its employees attesting that it was the employer’s “custom and practice to provide all new employees” with the Custodial Agreement which contained the unambiguous one paragraph forum selection clause. The court stated that this was sufficient foundation. Moreover, the fact that Turning Pointe itself is not a party under the Custodial Agreement was not problematic to the court because the language of the forum selection clause “mandates that any case ‘arising under’ the Custodial Agreement be brought in California, whether the case is initiated by the ‘Custodian, Participant, Beneficiary, or any interested party.” Because Ms. Juste is bound by the forum selection clause, the court expressed that the forum selection clause covers interest parties as well, which here includes Turning Pointe. As such, the court concluded that the forum selection clause applies to this matter, and it requires Ms. Juste to file her action in California federal court. Thus, Turning Pointe’s motion to dismiss for improper venue was granted, and the action was dismissed without prejudice.

Ninth Circuit

Emsurgcare v. Hager, No. 2:24-cv-02243-AB-PD, 2024 WL 3841495 (C.D. Cal. Aug. 8, 2024) (Judge André Birotte Jr.). Emergency healthcare providers, Emsurgcare and Emergency Surgical Assistant, brought this action seeking reimbursement of emergency medical services provided to a patient, defendant Avery Hager. The providers allege that Mr. Hager’s insurance, defendants United Healthcare/Oxford Health Plans, paid only $3,475 of the $103,500 owed, and that Mr. Hager is required to pay the remainder, plus interest. They assert a claim of breach of written contract, and a claim of account stated against the patient. In addition, the providers allege two counts of tortious interference against the United Healthcare defendants, asserting that the insurance companies interfered with the separate contract with themselves and Mr. Hager, “in which Hager agreed to pay that which his insurer would not cover.” In response to these allegations, Mr. Hager moved to dismiss and United moved to transfer venue. Both motions were granted in this order. Beginning with the motion to dismiss, the court agreed with defendants that the contract between the providers and Mr. Hager is an illegal case of balance billing of emergency surgery, in conflict with California law and unenforceable. The motion to dismiss was therefore granted. The court then tackled the motion to transfer venue. United argued that the case should be moved to the Southern District of New York pursuant to the terms of an unambiguous and binding forum selection clause. Concluding that no exceptional circumstances deemed the forum selection clause unreasonable, and that the clause applies to the providers’ tort claims, which cannot be resolved without interpreting the health plan, the court agreed that the case needed to be transferred to the district court in New York state.